Fun Facts

It’s been a while, but here is your latest batch of ‘fun’ facts:

Even though Russia has the world’s largest reserves of natural gas, a third of the country’s households are not connected to gas pipelines.

America now has nearly 5 PR people for every reporter, double the rate from a decade ago.

In 2006, 49% of pregnancies were unintended.

GPS devices sold in USA stop working if they reach an altitude of 60,000 feet or a speed of 515 m/s to prevent them from being used as missile guides.

America’s student-loan debt grows $2,726 every second.

The Eiffel tower weighs less than the cylindrical column of air that it sits in.

In its first three decades, the Soviet Union urbanized at about the same rate as China since 1978.

Nearly one in six young men (between the ages of 18-34) in the U.S. were either jobless or incarcerated in 2014.

American toddlers have shot 23 people this year.

Netflix cuts out over 6 days of commercials from your life per year, compared to cable TV.

In April, commercial bankruptcies were up 32 percent on a year over year basis, and Chapter 11 filings were up 67 percent on a year over year basis.

If 10% of US Smokers Quit, $63 Billion Would be Saved in the US Alone.

Beyoncé “Empower Women” clothing range is made by ‘sweat shop labourers on £4.30 a day’

When Michael Foot was put in charge of a nuclear disarmament committee, The Times reportedly announced the news with the headline “Foot Heads Arms Body.”

The American Native American population has recently approached the pre-Columbian population.

1/3 of All Cash is Owned by 5 US Tech Companies

The Chinese government fabricates nearly 490 million social media posts every year.

The cost of “Prometheus” movie budget would be enough to keep the search for real extraterrestrial life going for 52 years.

The largest private landowners in the USA own more land than some states

Depression, anxiety and aggression are found in 20% of Russian teenagers; the Western average is no higher than 5%. Suicidal thoughts come into the minds of 45% of Russian girls and 27% of young men.

In the 1990s murder coverage increased more than 500 percent in the U.S. — even as homicide rates dropped more than 40 percent.

The number of cars registered in the U.S. doubled between 1914 and 1916, reaching 3.4 million (compared to 188 million in 2014).

An estimated 900 Jehovah’s Witness followers die every year as a result of refusing blood transfusions.

Even if all non-violent drug offenders were released from federal and state prisons, the United States would still have the highest incarceration rate in the world.

More than 28,000 people have disappeared in Mexico in the decade since the country began its war on drugs

The average American woman now weighs as much as the average 1960s man.

The average American is 33 pounds heavier than the average Frenchman, 40 pounds heavier than the average Japanese citizen, and a whopping 70 pounds heavier than the average citizen of Bangladesh.

Together, the world’s adult human beings added up to 287 million tons of biomass in 2005. If every country had the same weight distribution as the U.S., the world would be 58 million tons fatter, an increase of 20 percent.

The latest federal count, conducted in January 2015, placed the number of homeless people in the US at 564,708. That’s almost as many people who live in the entire state of Wyoming.

70 percent of all Indian motel owners — or a third of all motel owners in America — are named Patel

We would only need 0.7 earths if every country used resources like India. We would need 5.4 if everyone lived like Australia.

Though the Empire State Building is less than half the height of the Burj Kalifa, it weighs two-thirds as much.

Karl Polanyi and the Modern World – Part 7

“I grew up on the butt-end of the English class system. I’m an orphan and I was raised by my grandmother. So I am the greatest example of inter-generational social mobility you’re ever going to see, because I’m a freaking Ivy League professor…How did I do that? because of this thing that gets blamed called the welfare state, that bloated, paternalist, out-of-control, [dis]incentivizing, demotivating piece of crap called the welfare state…”
–Mark Blyth

When I first started writing about The Great Transformation, I had intended to just write one post. That was before I discovered the richness and complexity of Polanyi’s ideas. It also dovetailed well with some other stuff I was already working on regarding the ancient economy and the roots of social institutions.

Here are a couple of good short summaries of Polanyi’s ideas on the Web:

Summary of the Great Transformation by Polanyi (WEA Pedagogy Blog)

Karl Polanyi Explains It All (The American Prospect)

Populist Backlash and Political Economy (Brad DeLong)

The latter one is interesting. It’s a summary of the core ideas of both Polanyi and John Maynard Keynes. The author, Brad DeLong writes: “I find it alarming that here we are, more than one a half decades into the twenty-first century, and the wisdom and true knowledge that is state-of-the-art as far as political economy is concerned is still to be found in the writings of John Maynard Keynes and Karl Polanyi.” The Real World Economics Review blog, a blog of “heterodox” economists and critics of the Neoclassical approach to economics, picked Keynes and Polanyi’s books as #1 and #2 of their ten most influential economics books of the last 100 years. This may explain DeLong’s complaint: one reason why the works of those two economists are ignored is because they had to be ignored in order to make room for the Chicago School free market fundamentalism which has gutted the commons and made the billionaires so much wealthier, even in an era of anemic growth. It’s also interesting to note that DeLong is one of the few economists to openly call himself a Neoliberal (despite the fact that actual Neoliberals typically avoid using that term).

I would be remiss if I didn’t at least mention Neoliberalism. As we saw in our survey, markets are created through government intervention by breaking up pre-existing social structures, especially in a crisis, and imposing them from above. Philip Mirowski, in his book about Neoliberalism Never Let a Serious Crisis Go To Waste, points out that Neoliberals are not in favor of small government at all, rather they desire a powerful state that can impose markets onto every aspect of human life.

He says that in the case of Market failure, the Neoliberal playbook consists of the following steps:

  • Create a “fog of doubt” i.e. confusion, over whether markets really failed at all. This usually takes the form of scapegoating some sort of government “interference” without which things would have been fine. For example, blaming the housing bubble and bust on  government forcing banks to lend to minorities. This has been conclusively disproven, yet market fundamentalists can still insist it’s true because they are in an intellectual echo chamber.
  • Create “new and stranger” markets to solve problems with the previous markets. This has the effect of commodifying even more things, including all of nature itself. The classic case here is creating carbon “cap-and-trade” schemes to deal with climate change rather than just capping emissions.
  • Argue that the market will call forth some sort of “innovation” that will solve the problem. In the case of global warming, this manifests, for example, as Elon Musk worship. The private sector is infinitely innovative, and so long as the “incentives” are right, the Market will solve any problem as long as government doesn’t get in the way. Electric cars, genetically-modified crops, fracking and geoengineering are all proof of this.

He also makes the following points about it:

  • Under Neoliberalism, whoever falls behind has only themselves to blame for not positioning themselves correctly in the Market and not making the most of their “human capital.” That is, there is no one else to blame; it’s all on you and you alone. Failure is your fault, and the self-recrimination and shame of “your fault” culture and an individualist ethos prevents any effective collective response to Neoliberal ideas.
  • Neoliberalism is sustained by a “thought collective” that is structured like a Russian Doll consisting of think-tanks, societies, foundations, universities, professorships, journals, publications, etc., and promoted by well-compensated intellectual prostitutes sustained by money from wealthy donors and corporations who benefit from the philosophy.

I’m a neoliberal. Maybe you are too (Medium)

Neoliberalism, the Revolution in Reverse (The Baffler)

On Neoliberalism: An Interview with David Harvey (Monthly Review)

The crux of the post I was originally going to write was based on a couple articles I read making a similar point: that the reason the so-called “welfare states” provides greater levels of happiness, life satisfaction, stability, and social cohesion is because they “decommodify” things like labor, housing and education to a large extent, removing them from the vagaries of the market and making them into social goods that everyone has access to. At the same time, they retain market institutions for the distribution of genuine commodities. That’s the point of this article, which argues that Bernie Sanders’ ideas of social democracy are rooted in this idea of “decommodification,” and hence those of Karl Polanyi (emphasis mine):

Gøsta Esping-Andersen made a different use of Polanyi in his groundbreaking The Three Worlds of Welfare Capitalism, published in 1990. He found that the right way to understand the differences between the welfare states of the United States, Sweden, and France isn’t necessarily to look at how much money they spend, but at how much they decommodify labor. Decommodification, for him, means that “a service is rendered as a matter of right, and when a person can maintain a livelihood without reliance on the market.” The United States actually spends a lot on welfare, but mostly for people who already have jobs—in the source of income boosts, tax-free benefit packages, and the like—so this spending does little to decommodify labor…

One of the divides within the Democratic primary between Bernie Sanders and Hillary Clinton has been between a social-democratic and a “progressive” but market-friendly vision of addressing social problems. Take, for example, health care. Sanders proposes a single-payer system in which the government pays and health care directly, and he frames it explicitly in the language of rights: “healthcare is a human right and should be guaranteed to all Americans regardless of wealth or income.”

Clinton, meanwhile, describes affordable health care as a right. Clinton also wants higher education to remain a market commodity…Sanders here offers a straightforward defense of decommodification—the idea that some things do not belong in the marketplace—that is at odds with the kind of politics that the leadership of the Democratic Party has offered more or less since Carter and the narrow policy “wonk” focus that tends to dominate coverage.

Whether or not Sanders has read Polanyi—similar language about economic and social rights was also present in FDR’s New Deal, which Sanders argues is the basis of his brand of socialism—Polanyi’s particular definition of socialism sounds like one Sanders would share:

“Socialism is, essentially, the tendency inherent in an industrial civilization to transcend the self-regulating market by consciously subordinating it to a democratic society. It is the solution natural to industrial workers who see no reason why production should not be regulated directly and why markets should be more than a useful but subordinate trait in a free society. From the point of view of the community as a whole, socialism is merely the continuation of that endeavor to make society a distinctively human relationship of persons.”

Sanders’s particular notion of a political revolution—in which people use democracy to change the rules governing our national political economy—is very Polanyian. Polanyi’s socialism has a certain modern appeal when the more traditionally Marxist idea of having the state seize the means of production has been abandoned even by most who identify as socialists. Instead, Polanyi’s relevance for today lies in his arguments that markets need to be subjected to democratic control, that human beings resist being transformed fully into commodities, and a fully realized market society is both impossible, undesirable, and at odds with genuine liberty and freedom.

Karl Polanyi for President (Dissent)

This article elaborates on that point (emphasis mine):

It is arguably the single most important concept in the entire logic of capitalism: commodification, more specifically the commodification of labour. A commodified world is one in which the vast majority of the population is dependent for their economic survival on the sale of their labour power as a commodity in the form of wage or salary work. In other words, to survive, people must sell their ability to work in the same kind of market that exists for any other commodity. As the 18th-century political economist Adam Smith noted, the demand for men is like that for any other commodity. Whatever the many positive and commendable aspects of the market economy, the reduction of people to commodities comes with two negative consequences.

First, when people become commodities they become subject to pitiless market forces beyond their control. They face a world characterised by chronic insecurity, since the market for the sale of their labour is, like the market for any commodity, subject to uncontrollable fluctuation. People become dependent on forces indifferent to them, or to any individual. As the Danish sociologist Gøsta Esping-Andersen put it in The Three Worlds of Welfare Capitalism (1990), ‘the market becomes to the worker a prison’. To survive and try to flourish, people adopt the values and norms of the market prison – competitive individualism, egotism, a focus on short-term material gain. In practice, these values detract from a satisfying life.

Commodification has another, equally destructive aspect. When people are reduced to commodities, they lack the ability to make moral claims on society. Just as we have no moral responsibility to bushels of wheat or consignments of mobile phones, we have no moral responsibility to workers who are conceived of as commodities, labour units instead of people. Not only is a commodity without a right to a job to begin with, it certainly has no right to paid sick days or vacation time, to pensions or healthcare, or to protection against arbitrary dismissal, to say nothing of a guaranteed severance package or similar redundancy benefits.

Rather than being treated with dignity and respect – as valued members of a community whose work contributes to the general good – workers as commodities are merely another factor of production, no more worthy of considerate treatment than the machines they manipulate.

If commodification is so harmful to humans, while the greater market system itself contributes so much to human society, the obvious solution is to maintain the essential features of the market while introducing public policies that serve to ‘decommodify’ workers and their families. Simply put, a society is decommodified to the extent that individuals can maintain something like a middle-class existence if they are unable to successfully sell their labour power as a commodity due to illness, old-age, disability, the need to care for a family member, the desire to improve one’s position through further education, or simply the inability to find (good) jobs when times are hard. The greater the level of decommodification, the easier it is for more people to survive without winning in the labour market.

The creation of a social safety net (the much-maligned ‘welfare state’) is essential to decommodifying people. It assures that those unable to find work will be provided with a minimum income, coupled in its most expansive form with other programmes that limit the extent to which one’s wellbeing is dependent on income – such as ‘family allowances’ (ie child support payments provided by the public), subsidised daycare and housing, and the availability of healthcare as a social right, ie as something (like police protection) that one receives because one is a citizen, not because one can pay for it.

Which political system does happiness economics support (Aeon)

That social democracies are far superior for human happiness is beyond dispute:

Using both individual- and aggregate-level data, I find that life satisfaction is higher in those countries that have the highest levels of decommodification…Critically, all of these relationships obtain regardless of one’s income or social status. Everyone benefits from a more generous welfare state…The fact is that, however we approach the subject empirically, human happiness increases as the level of decommodification increases.

The author then asks an important question:

If there is a strong link between the social-democratic vision of politics and human wellbeing, why does that vision appear to be in retreat? If ‘big government’ makes people happy, why do voters seem to be more inclined to elect governments that are committed to unfettered markets, ‘flexible’ labour laws, and ever-lower social spending?

The author answers that we’re bad at judging what makes us happy. He also points out the obvious–that politics reflects the priorities of the wealthy rather than those of the common people. Surveys over the years have shown that most people support things like universal health care and education, better schools, help for the unemployed, housing for all, a smaller military, etc.

I’ve referred to the book The Power of Market Fundamentalism before. In this review, the author points out why free market fundamentalism is such a seductive philosophy for a lot of people:

..Social naturalism, the idea that markets are pre-political, autonomous, and ultimately guided by natural laws, is not simply something embraced by Chicago school economists or policymakers. Market fundamentalism taps into our individualism, our independence, our conception of freedom, our sense of self, our very ethos. The authors write, “Its exceptional powers, we believe, are rooted in its promise of a world without politics, a world of almost complete individual freedom where the role of government—so often feared as coercive and threatening to our rights—would be kept to an absolute minimum.” This is why the idea of a free market can strike people as intuitive when it is clear it doesn’t work according to the theory.

…Another powerful justification of market fundamentalism, what Albert Hirschman called “the perversity thesis,” has become the guiding ideology of political campaigns to limit government intervention. The thesis holds that the market is “an equilibrium of self-adjustment” and that redistributive social policies to mediate market outcomes actually distort the market mechanism and hurt the people they are intended to help.

TPMF, importantly, contributes new research that pinpoints the moment in history when these ideas—social naturalism and the perversity thesis—became popularized. In 1795, in a small English town called Speenhamland, squires decreed that the poor would be entitled to welfare depending on the going price of bread and their family size. In 1798, Thomas Malthus reacted hostilely in his Essay on the Principle of Population, and argued that poor relief eliminates the scarcity that creates work incentives, thereby creating market disfunction. But this did not immediately translate into legislative change. Many elites worried that abolishing the Poor Law would trigger revolution in the countryside. But in 1834, after push-back from landed elites and clergy and with a new Whig government in power, a Royal Commission Report issued a damning critique of the program, spreading the ideas of Malthus to the population. The Report reframed the agricultural downturn as an “enduring parable of the dangers of government ‘interference’ with the market.” The result was welfare retrenchment, the New Poor Law, which substituted workhouses for relief and laid a foundation for social naturalism that persists today. Markets became embedded in ideas.

The Power of Bad Ideas (Boston Review)

This idea of decommodification – the idea of taking certain things out of the economic sphere and moving them back into the social/political, is a critical one. I’m convinced that it’s something that needs to happen, and that this will become ever more urgent as 1.) Growth comes to an end, and 2.) Formal jobs disappear. This takes us beyond the simplistic dichotomy of our only options being either “free markets” or “central planning.” Rather, it puts the market in its proper place vis-à-vis society:

According to a libertarian way of thinking, the product of the market is just while taxes are a form of theft. The pre-tax distribution of income is fair, while the post-tax one is the result of government “interference” in the economy. But to a Polanyian, this is nonsense, because the pre-tax distribution of income is just as much a product of social and political institutions as is the post-tax distribution. States don’t interfere with markets—they create them. That doesn’t mean that all markets are bad, and Polanyi never imagined that they would all end. It just means that if markets are interfering with other social priorities (like democracy, for example), or producing bad outcomes, you can change the rules that govern what parts of society operate with what kinds of markets.

Polanyi might also point out that even when the market is supposed to be “natural” and self-sustaining, states need to step in to ensure that they work. This was clearly the case in the financial crisis, when the financial markets imploded rapidly, putting the entire payments system and healthy firms at major risk. But it’s also clear in the European Union. The central bank controlling the euro took specific actions to drive Spain and Italy into market chaos to force austerity and neoliberal reforms. This didn’t simply happen on its own; the state had to intervene through markets.


Polanyi also offers a method of left analysis that doesn’t invoke Marxism. Polanyi was influenced by Marxism but his framework doesn’t sit easily with it; for example, he defines classes as cultural formations rather than by their relationship to the means of production. For this reason, as the writer Peter Frase notes, Polanyi has been more popular with theorists and academics seeking “a non-Marxist form of social democracy” that is robust and deeply theorized…

And the political movements arising due to the inability of people to sell their labor power in the Market are exactly in-line with what Polanyi predicted. We have a labor and housing crisis caused by the market – people can no longer afford homes, and the four-decade trend to “discipline” labor has strained society to the breaking point…

Polanyi wouldn’t have been surprised by the rise of Trump. He knew that the double movement—the protective steps that people take when exposed to too much unfettered capitalism—does not always benefit the left. Trump supporters clamoring to make America great again reflect one version of this; they hearken to a time when life was more secure and stable, at least for certain types of working- and middle-class whites.

For Polanyi, it would make sense that the Sanders and Trump insurgencies happened simultaneously, and that there are some people who would rank those two as their favored candidates, in spite of them seeming to come from opposite ends of the political spectrum. Both campaigns are based in part in complaints about the corrosive effects of exposure to global markets. Both are against so-called “free trade” and skeptical of open borders…in spite of all their differences, both Sanders and Trump look like expressions of “double movement” politics.

So that sums up the points I originally wanted to make, but I’d like to make a few more.

I think the above explains the tragic impotence of our politics. Since we’ve completely divided the economic sphere from the political sphere, politicians can do nothing about our exploding social problems except talk about growing the economy and hope for the best. Most of our lives are spent in the economic sphere after all–we need it to procure our food, clothing and shelter. We spend most of our lives “at work”– a totalitarian arrangement where democracy is banished and where you can be commanded what to do and when to do it with no recourse. In the economic sphere we are, essentially, slaves, and it is in this sphere that we spend most of our time.

So we vote for Democrats and Republicans to no avail – they can do nothing but preside over whatever the economic system decrees. If the economic system decrees, for example, that half of the population is redundant to the economic order, or that vast swaths of the country become economic “sacrifice zones,” well then, that’s a shame, but nothing can be done. It’s the “logic” of the economy. Our priority is never to “interfere” in the workings of the Market, because that will make us all worse off, or at least that’s what our leaders say. So we cycle randomly between political parties looking for a savior–from Republicans to Democrats back to Republicans–from Bush to Clinton, to Bush, to Obama, to Clinton–and nothing changes! This is because both parties can do nothing but promise more growth. That’s the extent of their ability to tackle real problems. But, of course, politicians can’t create growth. Sure, they’ll claim once their tax cut passes, or once we repeal this or that regulation, or some other “pro-growth” policy, things will change. But it doesn’t work. Voting doesn’t change anything. It can’t by design.

Think of how we’re supposed to find work now. We’re just tossed into the impersonal market, sink-or-swim style, with some vague notion of finding something to do that we’re “passionate” about. Most people aren’t passionate about any of the crap we are forced to do to earn money. We’re also told that we’re worthless without a college degree, meaning that colleges have become tollbooths to jobs, and charge accordingly. So we become indentured servants, going deeply into debt just to get a mere chance at a job. We are turned into high-risk indebted gamblers just to survive! Think of how insane that is.

We must simply conform to what the market decrees. If that means becoming rootless flotsam hopping in the U-Haul every few years and moving to a new location gambling that there will be jobs there, well, then, you simply have to do that and not complain. If you need to abandon the neighborhood your parents and grandparents and grew up in to look for ajob, then that is what you must do. You must conform to the economy, not the other way around. No wonder social bonds are so strained. And anyone who falls behind, well, they alone are responsible for their plight.

It also indicates why we are addicted to permanent growth. Once growth slows the market stops working and society is thrown into chaos. Unemployment, poverty, homelessness, crime, all increase, and nothing can be done so long as the foundation of society is simply economic market exchange.

The idea that we are all “rugged individualists” engaged in constant, unremitting competition in the market arena is incredibly toxic. No wonder we are constantly at each other’s throats. No wonder we have so many mass shootings. The idea of the market is competition, but competition is not a social glue–it’s a solvent. A society of markets becomes Hobbes’ “warre of all against all.” Here’s a good Reddit comment:

The idea that “competition” is a natural order of things is completely fabricated. Competition is a learned behavior and value, 100%.

A think tank back in the 50s-60s proved this to be true. I forget off-hand which it was, I think the Rand corporation. As I recall after coming up with “game theory” as a way to predict human behavior, they did studies and found that nobody in their studies behaved with the “rational self interest” in the way they had predicted; everyone cooperated with each other instead. And rather than re-evaluating their hypothesis, they just assumed the testing was an anomaly and steamrolled right into the cold war continuing to utilize game theory as their primary model for fighting it.

Cooperation is the natural human tendency, not competition. Competition has simply been heavily indoctrinated into people for the last 50 years or so.

Competition for resources only occurs when there is a perceived threat to one’s own access for those resources. But if there is no threat, then there is no reason for competition (putting yourself at risk of losing out) to be preferred over cooperation (ensuring everyone, including oneself, gets a share of the resources).

Sociopaths got into power during a period of intense paranoia, and they have built the world around them to suit that vision.

I believe that story was told by Douglas Rushkoff in his book Life Inc. Indeed, that cooperation, not competition, was the foundation for human society was pointed out by Peter Kropotkin.

Here’s another good Reddit comment:

The Anglosphere/West Europeans don’t understand how important having a semblance of community which their societies almost totally lack, matters. They depend on money, the state and technology for almost everything so when those mechanisms break their societies will not function.

This makes me think about the book Reinventing Collapse. The thesis of that book is that the United States would be much more vulnerable to an economic collapse than the Soviet Union was. Well, now we can clearly see why. Every aspect of modern American life is utterly dependent on functioning Markets! The Soviet Union was mostly a non-market economy. Yes, it was less “efficient,” but it was far more resilient: even without paychecks, people showed up for work to keep the lights on, the trains running, and the hospitals staffed. People didn’t lose their homes or their jobs. People were less dependent on a market which didn’t deliver goods anyway, as empty shelves and lines testified, so they lived in what was essentially a “pre” market economy: growing their own food, living with relatives in apartments which could not be sold, and bartering for basic supplies. This was how most societies functioned prior to the last two hundred years, making “collapse” a much different concept than how we think of it today.

It’s interesting to contemplate how the Market changes people’s behavior. People are assumed naturally to be acquisitive, competitive, lazy, status seeking, eager to accumulate goods and gain the most money for the least effort, and so forth. Thus, the market is portrayed as a natural extension of human behavior. But as we’ve seen, the idea that all of us need to claw everything we need from the impersonal Market is a very new one. It has never existed before the present. As Polanyi states, “Previously to our time, no society has ever existed that, even in principle, was controlled by markets”. There is nothing natural about how it makes us behave—like greedy, selfish, assholes. So to what extent is our behavior shaped by market institutions, and then the resulting behavior is claimed as our “natural” human nature, and anything going against it “unnatural” and doomed to fail? As David Graeber says:

“At this point, it’s easier to understand why economists feel so defensive about challenges to the Myth of Barter, and why they keep telling the same old story even though most of them know it isn’t true. If what they are really describing is not how we ‘naturally’ behave but rather how we are taught to behave by the market—well who, nowadays, is doing most of the actual teaching? Primarily, economists. … [I]s economics instead a technique of operating within a world that economists themselves have largely created?”

Another side-effect is that everything we do is evaluated through the lens of short-term profit. Nothing can be done that looks to future generations, only immediate profit.  In pre-market societies, the foundations of life were social/religious, rather than productivism/profit. You could never have something like the Gothic cathedrals, which took several lifetimes to build, under the current system. No wonder our culture and built environment are so impoverished.

There are a lot more ideas to discuss based on this, but I’ll end it here.

Now, there’s a guy called Karl Polanyi. Karl Polanyi was a Hungarian refugee writing at the same time as Hayek. and he wrote a book in 1944, the same time he wrote his most famous book The Road to Serfdom, called the Great Transformation. And in the Great Transformation he said, whenever we try to make markets, we forget that they don’t come out of the ground and they’re not given by God. It’s just like globalization. The entire architecture of globalization depends upon legal treaties. When we talk about financial markets and people trading derivitives, we figure these are legal contracts. These are things made by men and women.

Now what Polanyi pointed out is was, when you liberalize to use our contemporary language; when you privatize, integrate, when you create global supply chains, when you outsource, when you do all these things, the people who get hurt by this do not get automatically compensated. And when they figure out that they’re never going to be compensated, they invented democracy. And then they come after the people who have done this to them through the ballot box. There’s no guarantee that you get a nice outcome. There’s no guarantee that you end up with a nice New Deal order with a little bit of redistribution. Let’s remember that Adolf Hitler was voted into power. And at the 1934 election the Nazis got 43.1 percent of the vote…

–Mark Blyth

Karl Polanyi and the Modern World – Part 6

Last time we saw how the utopian project championed by economic liberals–the global “One Big Market” –was created by the forced commodification of land, labor and capital into factors of production, and the institutional separation of society into a totally separate economic sphere and  political sphere. The economy was now “disembedded” — something wholly separate from the wider society and subject to its own “economic” laws, to be kept free from outside “interference.” A new class of professional economists came into being at this time, dedicated to uncovering the deterministic “laws” of the self-regulating marketplace that were as regular and predictable as the laws of physics.

In order to construct the global self-regulating market, economic liberals championed three core concepts after 1820. These were that:

  • Labor should find its price on the market.
  • The creation of money should be subject to an automatic mechanism.
  • Goods should be free to flow from country to country without hindrance or preference.

These led to the following institutions:

  • A competitive labor market
  • The automatic gold standard
  • International free trade.

Polanyi says that after 1830, the concept of market liberalism went from “academic interest” to “boundless activism.” One of these activities was the repeal of the Speenhamland system in England, a sort of Universal Basic Income scheme, and its replacement with the New Poor Law, which was expressly designed to force people into the labor market, designating horrible “workhouses” for those who could not find paid work. Now everyone would have to compete against one another in the labor market to survive.

Although the Poor Law Amendment Act did not ban all forms of outdoor relief, it stated that no able-bodied person was to receive money or other help from the Poor Law authorities except in a workhouse. Conditions in workhouses were to be made harsh to discourage people from claiming…The Poor Law Commissioners were to be responsible for overseeing the implementation of the Act…Despite the aspirations of the reformers, the New Poor Law was unable to make the Workhouse as bad as life outside. The primary problem was that in order to make the diet of the Workhouse inmates “less eligible” than what they could expect outside, it would be necessary to starve the inmates beyond an acceptable level. It was for this reason that other ways were found to deter entrance to the Workhouses. These measures ranged from the introduction of prison style uniforms to the segregation of ‘inmates’ into yards – there were normally male, female, boys’ and girls’ yards.

New Poor Law (Wikipedia)

Polanyi explains that the gold standard was an innovation expressly designed to put the theory of self-regulating markets in place and make it appear as if it were a natural development. That is, it was an institution specifically designed to drive the necessity of global trade. How did it work?

Market liberals wanted to create a world with maximal opportunities to extend the scope of markets internationally, but they had to find a way that people in different countries with different currencies could freely engage in transactions with each other. They reasoned that if every country conformed to three simple rules, the global economy would have the perfect mechanism for global self-regulation.

  • First, each country would set the value of its currency in relation to a fixed amount of gold and would commit to buying and selling gold at that price.
  • Second, each country would base its domestic money supply on the quantity of gold that it held in its reserves, its circulating currency would be backed by gold.
  • Third, each country would endeavor to give its residents maximal freedom to engage in international economic transactions.

The gold standard put a fantastic machinery of global self-regulation into place. Firms in England were able to export goods and invest in all parts of the world, confident that the currencies they earned would be as “good as gold.” In theory, if a country is in a deficit position in a given year because its citizens spent more abroad than they earned, gold flows out of that country’s reserves to clear payments due to foreigners. The domestic supply of money and credit automatically shrinks, interest rates rise, prices and wages fall, demand for imports declines, and exports become more competitive. The country’s deficit would therefore be self-liquidating.

Without the heavy hand of government, each nation’s international accounts would reach a balance. The globe would be unified into a single market place without the need for some kind of world government or global financial authority; sovereignty would remain divided among many nation-states whose self-interest would lead them to adopt the gold standard rules voluntarily.

By the 1800’s the idea that money’s value derived from gold was treated as received wisdom and was generally accepted by people of different political persuasions in all major industrialized countries:

Belief in the gold standard was the faith of the age…namely, that banknotes have value because they represent gold.Whether the gold itself has value for the reason that it embodies labor, as the socialists held, or for the reason that it is useful and scarce, as the orthodox doctrine ran, made for once no difference. The war between heaven and hell ignored the money issue, leaving capitalists and socialists miraculously united… It would be hard to find any divergence between utterances of Hoover and Lenin, Churchill and Mussolini, on this point. Indeed, the essentiality of the gold standard to the functioning of the international economic system of the time was the one and only tenet common to men of all nations and all classes, religious denominations, and social philosophies [26]

The three mechanisms above were all interlocking: they formed a tripod, with the removal of any single leg causing the whole thing to collapse. Polanyi tells us “The sacrifices involved in achieving any one of them were useless, if not worse, unless the other two were equally secured. It was everything or nothing.” That’s why even if one of those things ran into a problem–such as the gold standard– they had to remain in place, because each interlocking piece was needed to reinforce the other.

All Western countries followed the same trend, irrespective of national mentality and history With the international gold standard the most ambitious market scheme of all was put into effect, implying absolute independence of markets from national authorities. World trade now meant the organizing of life on the planet under a self-regulating market, comprising labor, land, and money, with the gold standard as the guardian of this gargantuan automaton. Nations and peoples were mere puppets in a show utterly beyond their control. They shielded themselves from unemployment and instability with the help of central banks and customs tariffs, supplemented by migration laws. These devices were designed to counteract the destructive effects of free trade plus fixed currencies, and to the degree in which they achieved this purpose they interfered with the play of those mechanisms.

The international gold standard and fixed rates meant that a trade imbalance would lead to devastating deflations in the domestic economy. Exports were cheaper for manufacturers, but the rest of the domestic economy would have to cope with falling prices and falling wages. This caused the credit system to frieze up which damaged the domestic economy. To cope with falling wages, grain would have to be as cheap as possible, which necessitated a global grain market free from any price supports for domestic producers. The only way to rectify the imbalance was to increase foreign exports, which meant an elimination of all tariffs and trade barriers. All these parts were interlocking, and the removal of one would cause the system to fail:

Anybody could see that the gold standard, for instance, meant danger of deadly deflation and, maybe, of fatal monetary stringency in a panic.The manufacturer could, therefore, hope to hold his own only if he was assured of an increasing scale of production at remunerative prices (in other words, only if wages fell at least in proportion to the general fall in prices, so as to allow the exploitation of an everexpanding world market)…Nothing less than a self-regulating market on a world scale could ensure the functioning of this stupendous mechanism. Unless the price of labor was dependent upon the cheapest grain available, there was no guarantee that the unprotected industries would not succumb in the grip of the voluntarily accepted taskmaster, gold.

The expansion of the market system in the nineteenth century was synonymous with the simultaneous spreading of international free trade, competitive labor market, and gold standard; they belonged together. No wonder that economic liberalism turned almost into a religion once the great perils of this venture were evident.

What Polanyi calls “token money” was created and regulated by the state to cope with the needs for credit and stable purchasing power in the domestic economy:

But for domestic purposes…specie is an inadequate money just because it is a commodity and its amount cannot be increased at will. The amount of gold available may be increased by a small percentage over a year, but not by as many dozen within a few weeks, as might be required to carry a sudden expansion of transactions.

Token money was developed at an early date to shelter trade from the enforced deflations that accompanied the use of specie when the volume of business swelled. No market economy was possible without the medium of artificial money.

In the absence of token money business would have to be either curtailed or carried on at very much lower prices, thus inducing a slump and creating unemployment.

In its simplest form the problem was this: commodity money was vital to the existence of foreign trade; token money, to the existence of domestic trade. How far did they agree with each other?

To spread the risks around to the widest extent, token money needed to be centrally managed. This led to the establishment of various central banks. This means that: central banks were first created to cope with the effects of the gold standard! This shows the ignorance of the Libertarian/Austrian insistence on the gold standard with the simultaneous efforts to dismantle central banking. The use of token money once again meant that the “free” market required government management (Bitcoin advocates, please note):

Under nineteenth-century conditions foreign trade and the gold standard had undisputed priority over the needs of domestic business. The working of the gold standard required the lowering of domestic prices whenever the exchange was threatened by depreciation. Since deflation happens through credit restrictions, it follows that the working of commodity money interfered with the working of the credit system. This was a standing danger to business. Yet to discard token money altogether and restrict currency to commodity money was entirely out of the question, since such a remedy would have been worse than the disease.

Central banking mitigated this defect of credit money greatly. By centralizing the supply of credit in a country, it was possible to avoid the wholesale dislocation of business and employment involved in deflation and to organize deflation in such a way as to absorb the shock and spread its burden over the whole country. The bank in its normal function was cushioning the immediate effects of gold withdrawals on the circulation of notes as well as of the diminished circulation of notes on business.

The case of money showed a very real analogy to that of labor and land. The application of the commodity fiction to each of them led to its effective inclusion into the market system, while at the same time grave dangers to society developed. With money, the threat was to productive enterprise, the existence of which was imperiled by any fall in the price level caused by use of commodity money. Here also protective measures had to be taken, with the result that the self steering mechanism of the market was put out of action.

Now the institutional separation of the political and economic spheres had never been complete, and it was precisely in the matter of currency that it was necessarily incomplete; the state…was in fact the guarantor of the value of token money, which it accepted in payment for taxes and otherwise. This money was not a means of exchange, it was a means of payment; it was not a commodity, it was purchasing power; far from having utility itself, it was merely a counter embodying a quantified claim to things that would be purchased. Clearly, a society in which distribution depended upon the possession of such tokens of purchasing power was a construction entirely different from market economy.

Libertarians often point to the United States during this period as the exemplar of a self-regulating market delivering prosperity free from government interference. This is their ideal “golden age.” But Polanyi points out that this was only possible due to an endless supply of the “fictitious commodities” of land and labor. Once those failed to grow, the system broke down:

America has been adduced by economic liberals as conclusive proof of the ability of a market economy to function. For a century, labor, land, and money were traded in the States with complete freedom, yet allegedly no measures of social protection were needed, and apart from customs tariffs, industrial life continued unhampered by government interference.

The explanation, of course, was simply free labor, land, and money. Up to the 1890s the frontier was open and free land lasted; up to the Great War the supply of low standard labor flowed freely; and up to the turn of the century there was no commitment to keep foreign exchanges stable. A free supply of land, labor, and money continued to be available; consequently no self-regulating market system was in existence. As long as these conditions prevailed, neither man, nor nature, nor business organization needed protection of the kind that only intervention can provide.

As the lower ranges of labor could not any more be freely replaced from an inexhaustible reservoir of immigrants, while its higher ranges were unable to settle freely on the land; as soil and natural resources became scarce and had to be husbanded; as the gold standard was introduced in order to remove the currency from politics and to link domestic trade with that of the world, the United States caught up with a century of European development: protection of the soil and its cultivators, social security for labor through unionism and legislation, and central banking—all on the largest scale—made their appearance…Thus America offered striking proof, both positive and negative, of our thesis that social protection was the accompaniment of a supposedly self-regulating market.

In fact, the gold standard led to all sort of problems for domestic businesses, which sought ways to limit the damage, something omitted in the happy tales and sunny depictions of yeoman farmers, cattle ranchers, general store owners, and other “rugged individualists” of this time period spun by libertarians:

This aggressive push to wean the economy off of paper currency—and onto hard money—strained the banking system. Demand for specie by customers in New York City exceeded supply, and, on May 9, 1837, banks there responded by refusing specie withdrawal. The suspension of convertibility in the nation’s financial center caused panic that quickly spread to the rest of the country. Banks, looking to replenish the specie in their vaults, refused to make new loans and called in existing loans, triggering a collapse of credit and a severe and prolonged decline in production and employment across the country.

The Man on the Twenty-Dollar Bill and the Panic of 1837 (Liberty Street)

The [1849 California] gold rush constituted a positive monetary supply shock because the United States was on the gold standard at the time. The nation had switched from a bimetallic (gold and silver) standard to a de facto gold standard in 1834. Under the latter, the U.S. government stood ready to buy gold for $20.67 per ounce, a parity that prevailed until 1933. That commitment anchored prices, but the large gold discovery functioned like a monetary easing by a central bank, with more gold chasing the same amount of goods and services. The increase in spending ultimately led to higher prices because nothing real had changed except the availability of a shiny yellow metal.

In his excellent essay on gold standards, the economic historian Michael Bordo documents that the average annual U.S. inflation rate was many times lower under the gold standard (between 1880 and 1914) than in the subsequent 1946-2003 period. However, he shows that the gold standard led to more volatile short-term prices (including bouts of pernicious deflation) and more volatile real economic activity (because a gold standard limits the government’s discretion to offset aggregate demand shock). Bordo documents that short-run prices and real output were many times less volatile after the United States left the gold standard than before. Apart from their macroeconomic disadvantages, gold standards are also expensive; Milton Friedman estimated the cost of mining the gold to maintain a gold standard for the United States in 1960 at 2.5 percent of GDP ($442 billion in today’s terms).

The California Gold Rush and the Gold Standard (Liberty Street)

In the late 1800s, a surge in silver production made a shift toward a monetary standard based on gold and silver rather than gold alone increasingly attractive to debtors seeking relief through higher prices.The U.S. government made a tentative step in this direction with the Sherman Silver Purchase Act, an 1890 law requiring the Treasury to significantly increase its purchases of silver. Concern about the United States abandoning the gold standard, however, drove up the demand for gold, which drained the Treasury’s holdings and created strains on the financial system’s liquidity. News in April 1893 that the government was running low on gold was followed by the Panic in May and a severe depression involving widespread commercial and bank failures.

Gold, Deflation, and the Panic of 1893 (Liberty Street)

Polanyi also argues that colonialism was another response to these problems. In theory the global marketplace was anti-colonial, since everyone had access and any country could enter it and trade on equal terms with everyone else. In practice, however, the world organized into trade blocks behind barriers to protect themselves. By colonizing large parts of the globe, nation-states ensured a reliable source of raw materials (rubber in the Belgian Congo, for example) and reliable export markets for domestic producers. This drove the rush for colonies in Africa and Asia:

The import tariffs of one country hampered the exports of another and forced it to seek for markets in politically unprotected regions. Economic imperialism was mainly a struggle between the Powers for the privilege of extending their trade into politically unprotected markets. Export pressure was reinforced by a scramble for raw material supplies caused by the manufacturing fever. Governments lent support to their nationals engaged in business in backward countries. Trade and flag were racing in one another’s wake. Imperialism and half-conscious preparation for autarchy were the bent of Powers which found themselves more and more dependent upon an increasingly unreliable system of world economy. And yet rigid maintenance of the integrity of the international gold standard was imperative. This was one institutional source of disruption.

At this same time, to cope with the effects of trade and industrialism, you also saw the trend of nation-states becoming larger and more centralized. This was to seek ever-bigger internal markets to secure a competitive advantage. Get big or get out. The large, centralized states we take for granted today, such as Germany and Italy, came into being in the 1870’s. The two great terrestrial empires – the United States and Russia, expanded ocean to ocean while gobbling up territory from their neighbors.

This leads to one of the “paradoxes” of the market—It created an enormous expansion–not contraction–in centralized state power and the reach of the nation-state. Even today we see that the largest capitalist economies always have the largest governments, because they are required to ensure that the system functions as designed:

There was nothing natural about laissez-faire; free markets could never have come into being merely by allowing things to take their course. Just as cotton manufactures—the leading free trade industry—were created by the help of protective tariffs, export bounties, and indirect wage subsidies, laissez-faire itself was enforced by the state. The [eighteen] thirties and forties saw not only an outburst of legislation repealing restrictive regulations, but also an enormous increase in the administrative functions of the state, which was now being endowed with a central bureaucracy able to fulfil the tasks set by the adherents of liberalism…

The road to the free market was opened and kept open by an enormous increase in continuous, centrally organized and controlled interventionism. To make Adam Smith’s “simple and natural liberty” compatible with the needs of a human society was a most complicated affair. Witness the complexity of the provisions in the innumerable enclosure laws; the amount of bureaucratic control involved in the administration of the New Poor Laws which for the first time since Queen Elizabeth’s reign were effectively supervised by central authority; or the increase in governmental administration entailed in the meritorious task of municipal reform. And yet all these strongholds of governmental interference were erected with a view to the organizing of some simple freedom—such as that of land, labor, or municipal administration.

Just as, contrary to expectation, the invention of laborsaving machinery had not diminished but actually increased the uses of human labor, the introduction of free markets, far from doing away with the need for control, regulation, and intervention, enormously increased their range. Administrators had to be constantly on the watch to ensure the free working of the system. Thus even those who wished most ardently to free the state from all unnecessary duties, and whose whole philosophy demanded the restriction of state activities, could not but entrust the self-same state with the new powers, organs, and instruments required for the establishment of laissez-faire. [146-147]

Consider, for example, the vast bureaucracy involved in credit scores – numbers that track every individual’s behavior to assess their “credit risk.” Or bond ratings agencies. Or the public school and university system. Or the vast bureaucracy which is dedicated to policing people on public assistance to make sure they are spending the money properly and are looking for jobs. Or the vast prison gulags which house the unemployed (modern workhouses). Or the vast system of state-owned and supported roads, ports, and other infrastructure. Or the regulatory apparatus designed to ensure trust and fair-dealing which is necessary for exchange. It takes a lot of bureaucrats–government and otherwise–to make “free and open” markets work properly.

While the drive to create the laissez-faire economy was planned from the top-down and put into place by legislation (or its repeal), the drive to protect society from its ill-effects through some sort of collective protection was spontaneous and unplanned. this leads to one of Polanyi’s most often cited quotes: “laissez faire was planned; planning was not.” While establishing the global market was top-down unified intellectual movement advanced by market liberals, the drive to protect workers and  communities from devastation emerged spontaneously and piecemeal in multiple countries via grass-roots efforts, only later coalescing into broad-based popular movements. Thus, the market project is more accurately described as “collectivist,’ while the drive to rein it in was individualistic:

The countermove against economic liberalism and laissez-faire possessed all the unmistakable characteristics of a spontaneous reaction. At innumerable disconnected points it set in without any traceable links between the interests directly affected or any ideological conformity between them.[156]

The great variety of forms in which the “collectivist” countermovement appeared was not due to any preference for socialism or nationalism on the part of concerted interests, but exclusively to the broad range of the vital social interests affected by the expanding market mechanism.

For if market economy was a threat to the human and natural components of the social fabric, as we insisted, what else would one expect than an urge on the part of a great variety of people to press for some sort of protection?…Also, one would expect this to happen without any theoretical or intellectual preconceptions on their part, and irrespective of their attitudes toward the principles underlying a market economy. Again, this was the case…[156-157]

As he points out, social protection legislation emerges at about the same time in Victorian England and Bismarck’s Prussia, two radically different societies with no ideological connection or coordination between them. By contrast, market institutions such as the dismantling of tariffs and the gold standard were planned, executed and coordinated simultaneously by global elites and bureaucrats as part of a top-down project; indeed they could only emerge this way. An automatically-adjusting global trading mechanism does not just “happen” despite what libertarians claim.

“Collectivist” social movements were constantly scapegoated by market liberals for the system’s failures. According to them it was the  “greedy” businessmen, monopolists, leftist intellectuals, and trade unions whose “lack of faith” was responsible for not adhering to the letter of the program, giving them a built-in excuse:

While in our view the concept of a self-regulating market was Utopian, and its progress was stopped by the realistic self-protection of society, in their view all protectionism was a mistake due to impatience, greed, and shortsightedness, but for which the market would have resolved its difficulties…[148]

When around the 1870s a general protectionist movement—social and national—started in Europe, who can doubt that it hampered and restricted trade? Who can doubt that factory laws, social insurance, municipal trading, health services, public utilities, tariffs, bounties and subsidies, cartels and trusts, embargoes on immigration, on capital movements, on imports—not to speak of less-open restrictions on the movements of men, goods, and payments—must have acted as so many hindrances to the functioning of the competitive system, protracting business depressions, aggravating unemployment, deepening financial slumps, diminishing trade, and damaging severely the self-regulating mechanism of the market?

The root of all evil, the liberal insists, was precisely this interference with the freedom of employment, trade and currencies practiced by the various schools of social, national, and monopolistic protectionism since the third quarter of the nineteenth century; but for the unholy alliance of trade unions and labor parties with monopolistic manufacturers and agrarian interests, which in their shortsighted greed joined forces to frustrate economic liberty, the world would be enjoying today the fruits of an almost automatic system of creating material welfare. Liberal leaders never weary of repeating that the tragedy of the nineteenth century sprang from the incapacity of man to remain faithful to the inspiration of the early liberals; that the generous initiative of our ancestors was frustrated by the passions of nationalism and class war, vested interests, and monopolists, and above all, by the blindness of the working people to the ultimate beneficence of unrestricted economic freedom to all human interests, including their own. A great intellectual and moral advance was thus, it is claimed; frustrated by the intellectual and moral weaknesses of the mass of the people…

This, indeed, is the last remaining argument of economic liberalism today. Its apologists are repeating in endless variations that but for the policies advocated by its critics, liberalism would have delivered the goods; that not the competitive system and the self-regulating market, but interference with that system and interventions with that market are responsible for our ills.

The shorthand used by libertarians today is “capitalism would be a great system if it were ever tried,” or their constant carping about “crony capitalism.”

Polanyi says that neither the spread of the market, nor the counterreaction to it, breaks down simply along class divisions. This is probably in response to Marx’s analysis. Concerning the Market, he says, “The spread of the market was thus both advanced and obstructed by the action of class forces. [162]” Similarly, the response to it was not as simple as the working classes in opposition to the wealthier classes; for example, many small businessmen and landowners wanted protection from the vagaries of the market too: “Briefly, not single groups or classes were the source of the so-called collectivist movement, though the outcome was decisively influenced by the character of the class interests involved.”

One of the side-effects of this interlocking trade mechanism was what Polanyi called “The Hundred Years’ Peace” in Europe from the end of the Napoleonic Wars to the outbreak of World War One. Conflicts at this time were mainly sporadic colonial conflicts (e.g. Boer War, Crimean War, war in the Congo, etc.). What caused this extraordinary historical circumstance? Polanyi attributes it to what he calls haute finance:

For an explanation of this amazing feat, we must seek for some undisclosed powerful social instrumentality at work in the new setting, which could play the role of dynasties and episcopacies under the old, and make the peace interest effective. This anonymous factor, we submit, was haute finance.

Haute finance an institution sui generis, peculiar to the last third of the nineteenth and the first third of the twentieth century, functioned as the main link between the political and the economic organization of the world. It supplied the instruments for an international peace system, which was worked with the help of the Powers, but which the Powers themselves could neither have established nor maintained… Organizationally, haute finance was the nucleus of one of the most complex institutions the history of man has produced.[10]

Polanyi calls this new international system comprised of the gold standard, haute finance and constitutionalism the “balance of power system.” The balance of power system meant that nations gained more from peace than by war.

The influence that haute finance exerted on the Powers was consistently favorable to European peace. And this influence was effective to the degree to which the governments themselves depended upon its cooperation in more than one direction. Consequently, there was never a time when the peace interest was unrepresented in the councils of the Concert of Europe. If we add to this the growing peace interest inside the nations where the investment habit had taken root, we shall begin to see why the awful innovation of an armed peace of dozens of practically mobilized states could hover over Europe from 1871 to 1914 without bursting forth in a shattering conflagration. [14]

The vast majority of the holders of government securities, as well as other investors and traders, were bound to be the first losers in such wars, especially if currencies were affected. …Finance…acted as a powerful moderator…Loans, and the renewal of loans, hinged upon credit, and credit upon good behavior…behavior is reflected in the budget and the external value of the currency cannot be detached from the appreciation of the budget, debtor governments were well advised to watch their exchanges carefully and to avoid policies which might reflect upon the soundness of the budgetary position… [14]

Trade had become linked with peace. In the past the organization of trade had been military and warlike… Trade was now dependent upon an international monetary system which could not function in a general war. It demanded peace, and the Great Powers were striving to maintain it. But the balance-of-power system, as we have seen, could not by itself ensure peace. This was done by international finance, the very existence of which embodied the principle of the new dependence of trade upon peace. [15-16]

Polanyi sees the breakdown of the market system and conflicts over colonialism as the fundamental cause of the First World War. This article gives some detail of the economic origins of the war:

The Economic Causes of the First World War (Socialist Standard)

Following that conflagration, Polanyi says that the nations failed to learn the lessons of the War and sought to reactivate the market society as it had been before, complete with open global trade and the gold standard. This simply set the stage for the Second World War.

In 1924 and after, Europe and the United States were the scene of a boisterous boom and drowned all concern for the soundness of the market system. Capitalism was proclaimed restored. Both Bolshevism and fascism were liquidated except in peripheric regions. The Comintern declared the consolidation of capitalism as a fact; Mussolini eulogized liberal capitalism; all important countries except Great Britain were on the upgrade. The United States enjoyed a legendary prosperity, and the Continent was doing almost as well. Hitler’s putsch had been quashed; France had evacuated the Ruhr; the Reichsmark was restored as by miracle; the Dawes Plan had taken politics out of reparations; Locarno was in the offing; and Germany was staring out on seven fat years. Before the end of 1926 the gold standard ruled again from Moscow to Lisbon.

It was in the third period–after 1929–that the true significant of fascism became apparent. The deadlock of the market system was evident. Until then fascism had hardly been more than a trait in Italy’s authoritarian government, which otherwise differed but little from those of a more traditional type. It now emerged as an alternative solution of the problem of an industrial society. Germany took the lead in a revolution of European scope and the fascist alignment provided her struggle for power with a dynamics which soon embraced five continents. History was in the gear for social change.

An adventitious but by no means accidental event started the destruction of the international system. A Wall Street slump grew to huge dimensions and was followed by Great Britain’s decision to go off gold and, another two years later, by a similar move on the part of the United States. Concurrently, the Disarmament Conference ceased to meet, and, in 1934, Germany left the League of Nations.

These symbolic events ushered in an epoch of spectacular change in the organization of the world. Three powers, Japan, Germany, and Italy, rebelled against the status quo and sabotaged the crumbling institutions of peace. At the same time the factual organization of the world economy refused to function. The gold standard was at least temporarily put out of action by its Anglo-Saxon creators; under the guise of default, foreign debts were repudiated; capital markets and world trade dwindled away. The political and economic system of the planet disintegrated conjointly.[243-244]

Eventually, the world fell into the biggest bust of them all–the global Great Depression. Polanyi argues that one again, the crisis was caused by the adherence to the gold standard and fixed exchange rates that market liberals championed to facilitate free trade. The 1930’s saw the second major breakdown of the international market system. Once again, unemployment soared and countries passed tariffs to try and limit the damage. Polanyi sees the rise of fascism and communism as an inevitable response to the failure of market society: “In reality, the part played by fascism was determined by one factor: the condition of the market system.”

These articles describe the role gold played in the economic disintegration of the world’s major industrial powers which led to the rise of fascism and the Second World War:

What was [the] gold standard and why was it under pressure in 1931?

The idea was that gold reserves represented a foundation for a nation’s currency and securities, allowing government notes to be exchanged for gold at any time at fixed rates. Exchange rates were stable among nations maintaining the gold standard. If a state began spending beyond its means and running deficits, those holding its notes would start converting them to gold, worrying that inflation would devalue the dollar, pound or franc. Conversions could exhaust a country’s gold reserves, punishing the government and the economy. Reserve levels determined how much currency nations could issue, and hence the money supply.

During the Depression, as revenues fell, governments trying to provide services ran growing budget deficits. This unnerved banks and wealthy investors, domestic and foreign, spurring waves of cash-outs (“Here’s your paper money; give me my gold!”). Banks and individuals then hoarded the gold, rather than using it for making loans or new investments.

The result was a continuing spiral of contraction. Credit was throttled, prices and wages fell (there wasn’t enough money moving to sustain them), debtors were hammered (their payments were fixed as their incomes shrank), and ultimately there were widespread defaults on economic commitments (bankruptcies, inability to pay interest due, abandonment of loans, expanding layoffs).

Gold withdrawals gutted the German financial system in the summer of 1931. When the state stopped shipments through exchange controls, the virus spread to Britain. As money evaporated from the banking system, economic activity floundered. Governments had two main options: Defend the exchange value of their currency to prevent inflation, at the price of further slowing the economy, or let the currency devalue to whatever level markets would determine, undermining exchange rates and purchasing power, in the hope that money “rightly priced” would begin circulating more fluidly.

Germany held the mark at a fixed rate, which turned out to be the wrong strategy. Britain let the pound float, at the mercy of the market. Initially the pound fell from $4.85 to less than $4.00. Then it rose to $4.22 before dropping again to $3.91 in early 1932. Bonds denominated in pounds had lost between 15 and 20 percent of their exchange value, but British products suddenly were 15 to 20 percent cheaper to sell abroad. Such tradeoffs punished investors but advantaged exporters. More than a dozen other nations soon followed Britain in abandoning the gold standard.

But France and the U.S. didn’t — with harsh implications before long.

The Gold Standard and the Great Depression: Echoes (BloombergView)

Under a pure gold standard, the government would stand ready to trade dollars for gold at a fixed rate. Under such a monetary rule, it seems the dollar is “as good as gold.”

Except that it really isn’t– the dollar is only as good as the government’s credibility to stick with the standard. If a government can go on a gold standard, it can go off, and historically countries have done exactly that all the time. The fact that speculators know this means that any currency adhering to a gold standard (or, in more modern times, a fixed exchange rate) may be subject to a speculative attack.

A gold standard only works when everybody believes in the overall fiscal and monetary responsibility of the major world governments and the relative price of gold is fairly stable. And yet a lack of such faith was the precise reason the world returned to gold in the late 1920’s and the reason many argue for a return to gold today. Saying you’re on a gold standard does not suddenly make you credible. But it does set you up for some ferocious problems if people still doubt whether you’ve set your house in order.

After suspending gold convertibility in World War I, many countries stayed off gold and experienced chaotic fiscal and monetary policies in the early 1920’s. Many observers reasoned then, just as many observers reason today, that the only way to restore fiscal and monetary responsibility would be to go back on gold, and by the end of the 1920’s, most countries had returned to the gold standard.

…The longer a country stayed on the gold standard, the more overall deflation it experienced. Many of us are persuaded that this deflation greatly added to the economic difficulties of those countries that insisted on sticking with a fixed value of their currency in terms of gold.

13 other countries besides the U.K. had decided to abandon their currencies’ gold parity in 1931…the average growth rate of industrial production for these countries…was positive in every year from 1932 on. Countries that stayed on gold, by contrast, experienced an average output decline of 15% in 1932. The U.S. abandoned gold in 1933, after which its dramatic recovery immediately began. The same happened after Italy dropped the gold standard in 1934, and for Belgium when it went off in 1935. On the other hand, the three countries that stuck with gold through 1936 (France, Netherlands, and Poland) saw a 6% drop in industrial production in 1935, while the rest of the world was experiencing solid growth.

The gold standard and the Great Depression (Econbrowser)

Polanyi published the book as World War Two was raging around the globe. His conclusion was that these events were ultimately caused by the failure of market society. He concluded that that the ideal market society championed by market liberals, where everything (including land, labor and capital) was a mere factor of economic production, and where society was just an accessory to the One Big Market was not only utopian, but ran contrary to fundamental human nature, which is why attempts to construct it would always be doomed to fail (emphasis in the original):

If industrialism is not to extinguish the race, it must be subordinated to the requirements of man’s nature…Nineteenth century society assumed that in his economic activity man strove for profit, that his materialistic propensities would induce him to choose the lesser instead of the greater effort and to expect payment for his labor; in short, that in his economic activity he would tend to abide by what they described as economic rationality, and that all contrary behavior was the result of outside interference.

It followed that markets were natural institutions, that they would spontaneously arise if only men were let alone. Thus, nothing could be more normal than an economic system consisting of markets under the sole control of market prices, and a human society based on such markets appeared, therefore, as the goal of all progress. Whatever the desirability or undesirability of such a society on moral grounds, it practicability–this was axiomatic–was grounded in the immutable characteristic of the race.

Actually, as we now know, the behavior of man both in his primitive state and right through the course of history has been almost the opposite of that implied in this view…The tendency to barter, on which Adam Smith so confidently relied for his picture of primitive man, is not a common tendency of the human being in his economic activities, but a most infrequent one. Not only does the evidence of modern anthropology give the lie to these rationalistic constructs, but the history of trade and markets has also been completely different from that assumed in the harmonistic teachings of nineteenth century sociologists.

Economic history reveals that the emergence of national markets was in no way the result of the gradual and spontaneous emancipation of the economic sphere from governmental control. On the contrary, the market has been the outcome of a conscious and often violent intervention on the part of government which imposed the market organization on society for noneconomic ends. And the self-regulating market of the nineteenth century turns out on closer inspection to be radically different from even its immediate predecessor in that it relied for its regulation on economic self-interest. The congenital weakness of nineteenth century society was not that it was industrial but that it was a market society. Industrial civilization will continue to exist when the utopian experiment of a self-regulating market will be no more than a memory[250]

Polanyi was confident that we could only be saved by pulling back from “pure” market society and re-embedding our economic life in social institutions. In his time, he believed that this was finally starting to happen through things like the abandonment of the gold standard during the war, and political movements like the New Deal and its “Four Freedoms,” including a guarantee of housing and work for everyone. He thought we might finally be learning our lesson.

Sadly, we now know that’s not what happened. After the oil crisis of the 1970’s, Keynsianism, designed to manage the recurring crises of the market and smooth out its excesses, was replaced by a global movement to create a “pure” market society based solely on unremitting competition. Citizens would be replaced with “consumers” transacting in the Market. Government would shrink,at least in theory.

Polanyi would be quick to point out how much Neoliberalism—just as much as its nineteenth-century predecessor—was an artificial creation of central state power rather than its absence. He would point to transnational institutions such as the World Bank, the International Monetary Fund, the Maastricht Treaty, the European Union, NAFTA, and the World Trade Organization, and other organizations/agreements. He would point to the role of the United States military in maintaining this system, as the British Empire did in years prior. He would note the dollar’s role as the world’s reserve currency. He would point to the artificial recasting of the natural world as “natural capital,” a fictitious commodity if there ever was one. He would point to the privatization of essential public services sustained by taxpayer dollars. He would point to what has happened in China over the past several decades as proof that the Market is a creation of strong central governments. He would say it is almost a reenactment of what took place in Britain, with its displaced rural proletariat heading into urban factories, its state supported industries, its trade protections and export-led model, its public infrastructure, it’s police state, its infrastructure development, and so forth. He would point to copyright protections and intellectual property laws. He would point to “welfare to work” schemes as the new poor law. He would point to the fact that the creators of Neoliberalism openly admit that it is imposed from above after some sort of crisis (the Shock Doctrine). And he would point to things like TPP/TTIP/TISA as not a lack of rules, but as a rewriting of them to benefit the needs of stakeholders like international corporations and the investor class over those of the citizenry. Finally, he would point out that the Euro works exactly like the gold standard did, with exactly  the same catastrophic results. Rather than dismantle or limit the market society, we have instead put it on steroids.

And now once again the world is on the brink of collapse…

BONUS: Barter in the modern world.

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.

Karl Polanyi and the Modern World – Part 2

Before we go any further, we should take a historical detour. Is the picture I presented last time of the primordial economy according to libertarians an accurate one? Was it really all solitary individuals peacefully making mutually-beneficial exchanges in “free and open” markets using a mutually agreed upon medium of exchange until the state came along to “steal” money from everyone? Does the market economy spontaneously arise from thousands of people walking around bartering for what they need from other people?

As it happens, I’ve been doing research in this area recently. And the answer is, “not even close.”

As David Graeber, an anthropologist and author, has pointed out, in none of the cultures anthropologists have studied that resemble the ancestral past is life ruled by anything like markets as we know them:

[T]here’s a standard story we’re all taught, a ‘once upon a time’ — it’s a fairy tale.

It really deserves no other introduction: according to this theory all transactions were by barter. “Tell you what, I’ll give you twenty chickens for that cow.” Or three arrow-heads for that beaver pelt or what-have-you. This created inconveniences, because maybe your neighbor doesn’t need chickens right now, so you have to invent money.
The story goes back at least to Adam Smith and in its own way it’s the founding myth of economics. Now, I’m an anthropologist and we anthropologists have long known this is a myth simply because if there were places where everyday transactions took the form of: “I’ll give you twenty chickens for that cow,” we’d have found one or two by now. After all people have been looking since 1776, when the Wealth of Nations first came out. But if you think about it for just a second, it’s hardly surprising that we haven’t found anything.

Think about what they’re saying here – basically: that a bunch of Neolithic farmers in a village somewhere, or Native Americans or whatever, will be engaging in transactions only through the spot trade. So, if your neighbor doesn’t have what you want right now, no big deal. Obviously what would really happen, and this is what anthropologists observe when neighbors do engage in something like exchange with each other, if you want your neighbor’s cow, you’d say, “wow, nice cow” and he’d say “you like it? Take it!” – and now you owe him one. Quite often people don’t even engage in exchange at all – if they were real Iroquois or other Native Americans, for example, all such things would probably be allocated by women’s councils.[1]

In fact, in hunter-gatherer economies, there really are no such concepts as “property,” or “ownership.” making markets somewhat difficult. But what about societies that have both sedentism and surpluses, two preconditions for the development of the kinds of larger, specialized economies like the ones we are studying?

Polanyi distinguishes three concepts that define the primordial economy: reciprocity, redistribution, and householding. It is these three concepts that form the basis of the primordial economy, not money or markets.

Reciprocity is described by anthropologist Marvin Harris:

Reciprocity is the technical term for economic exchange that takes place between two individuals in which neither specifies precisely what is expected in return nor when they expect it. Superficially, reciprocal exchanges don’t look like exchanges at all. The expectation of one party and obligation of the other remain unstated. One party can continue to take from the other for quite a while with no resistance from the giver and no embarrassment in the taker. Nonetheless, the transaction cannot be considered a pure gift. There is an underlying expectation of return, and if the balance gets too far out of line, eventually the giver will start to grumble and gossip. Concern will be shown for the taker’s health and sanity, and if the situation does not improve, people begin to suspect that the taker is possessed by malevolent spirits or is practicing witchcraft [2]

…to really see reciprocity in action you must live in an egalitarian society that doesn’t have money and where nothing can be bought or sold. Everything about reciprocity is opposed to precise counting and reckoning of what one person owes to another. In fact, the whole idea is to deny that anybody really owes anything. One can tell if a lifestyle is based on reciprocity or something else by whether or not people say thank you. In truly egalitarian societies, it is rude to be openly grateful for the receipt of material goods or services.[3]

That sounds like the antithesis of market exchanges! Clearly individuals attempting to make a profit or to “get one over” on someone else, as capitalists regularly do (“gotcha” capitalism) would not work in ancient societies. This is because in such societies, one’s social standing was paramount. In ancient societies, hoarding the best for oneself and depriving other people of what they needed for survival would lead to ostracism, not admiration:

The outstanding discovery of recent historical and anthropological research is that man’s economy, as a rule, is submerged in his social relationships. He does not act so as to safeguard his individual interest in the possession of material goods; he acts so as to safeguard his social standing, his social claims, his social assets. He values material goods only in so far as they serve this end.

The explanation, in terms of survival, is simple. Take the case of a tribal society. The individual’s economic interest is rarely paramount, for the community keeps all its members from starving unless it itself is born down by catastrophe, in which case interests are again threatened collectively, not individually. The maintenance of social ties, on the other hand, is crucial. First, because by disregarding the accepted code of honor, or generosity, the individual cuts himself off from the community and becomes an outcast; second, because, in the long run, all social obligations are reciprocal, and their fulfillment serves also the individual’s give-and-take interests best…[4]

Thus Homo economicus, the rational man constantly calculating how he will get ahead by cunningly trading in markets, is a fiction. Man is instead emerged in social relationships, and the economy grows out of that that, not impersonal market exchanges with an eye towards profit.

The second key to the primordial economy is redistribution. Nearly every ancient state was based in part on some sort of central player redistributing the collective fruits of the society to its members. Rather than a dirty word as it is in modern-day America, redistribution is what allowed primitive economies to form. Central repositories where food and goods were redistributed and stored were the earliest structures put up by ancient civilizations. Those who sought power did it by increasing production, first through exhortation and cajoling, and then through reinforcement of mutual obligations and tribute. They then gave away the surplus to their followers as a means of attaining prestige and status.

A well-known example of this phenomenon is the “big man” system of the Pacific Islands. In such societies, competitive feasts are held, with the organizer of the feast seeking esteem and prestige, and getting people to work harder to engender a surplus. But, the big man has no coercive power, and not only doesn’t get the best of everything, but sacrifices his own well-being to make sure others get the “meat and the fat”:

Early in the present century, anthropologists were surprised to discover that certain primitive tribes engaged in conspicuous consumption and conspicuous waste to a degree unmatched by even the most wasteful of modern consumer economies. Ambitious, status-hungry men were found competing with each other for approval by giving huge feasts. The rival feast givers judged each other by the amount of food they provided, and a feast was a  success only if the guests could eat until they were stupefied, stagger off into the bush, stick their fingers down their throats, vomit, and come back for more.

The big man can be described as a worker-entrepreneur–the Russians call them “Stakhanovites”–who renders important services to society by raising the level of production. As a result of the big man’s craving for status, more people work harder and produce more food and other valuables. p. 118

Among the Kaoka-speaking people of the Solomon Islands…the status-hungry individual begins his career by making his wife and children plant larger yam gardens…the Kaoka who wants to become a big man then gets his kinsmen and age-mates to help him fish. Later he begs sows from his friends and increases the size of his pig herd. As the litters are born he boards additional animals among his neighbors. Soon his relatives and friends feel that the young man is going to be a success. They see his large gardens and his pig herd and they redouble their own efforts to make the forthcoming feast a memorable one. When he becomes a big man they want the young candidate to remember that they helped him. Finally, they all get together and build and extra-fine house. The men go off on one last fishing expedition. The women harvest yams and collect firewood, banana leaves, and coconuts. As the guests arrive, the wealth is stacked in neat piles and put on display for everyone to count and admire… [5]

Such big men only arise in societies where intensification of effort produces surpluses. There can be no big men in hunter-gatherer societies, since additional work does not result in additional food. In fact, quite the opposite would occur. Hunter-gatherer societies would not be able to sustain such a surplus, and status-hungry individuals are kept in check. It is the survival of the group, not the individual, that is paramount. Thus, big men can only arise in societies where horticulture, animal husbandry, or agrarian agriculture is present:

Primitive hunters and gatherers work less that we do–without the benefit of a single labor union–because their ecosystems cannot tolerate weeks and months of intensive extra effort. Among the Bushmen, Stakhanovite personalities who would run about getting friends and relatives to work harder by promising them a big feast would constitute a definite menace to society. If he got his followers to work like the Kaoka for a month, an aspiring Bushman big man would kill or scare off every game animal for miles around and starve his people to death before the end of the year. So reciprocity and not redistribution predominates among the Bushmen, and the highest prestige falls to the quietly dependable hunter who never boasts about his achievements and who avoids any hint that he is giving a gift when he divides up the animal he has killed. [6]

In order to maintain their status, the big men must constantly throw new feasts or risk falling back to being a commoner:

The feast-giving days of the big man…are never over. On the threat of being reduced to commoner status, each big man is obliged to busy himself with plans and preparations for the next feast. Since there are several big men per village and community, these plans and preparations often lead to complex, competitive manuevering for the allegiance of friends and neighbors. The big men work harder, worry more, and consume less than anybody else. Prestige is their only reward.[7]

Competitive feasting may seem like some sort of crazy behavior, but as Marvin Harris points out, it serves a very important role in primitive societies:

Under conditions where everyone has equal access to the means of subsistence, competitive feasting serves the practical function of preventing the labor force from falling back to levels of productivity that offer no margin of safety in crises such as war and crop failures.

Furthermore, since there are no formal political institutions capable of integrating independent villages into a common economic framework, competitive feasting creates an extensive network of economic expectations. This has the effect of pooling the productive effort of larger populations than can be mobilized in any given village.

Finally, competitive feasting by big men acts as an automatic equalizer of annual fluctuations in productivity among a series of villages that occupy different microenvironments—seacoast, lagoon, or upland habitats. Automatically, the biggest feasts in any given year will be hosted by villages that have enjoyed conditions of rainfall, temperature, and humidity most favorable to production.[8]

For example, in the case of the potlatch among the fish-foragers of the Pacific Northwest:

Despite the overt competitive thrust of potlatch, it functioned aboriginally to transfer food an other valuables from centers of high productivity to less fortunate villages. I should put this even more strongly: Because of the competitive thrust, such transfers were assured. Since there were unpredictable fluctuations in fish runs, wild fruit and vegetable harvests, intervillage potlatching was advantageous from the standpoint of the regional population as a whole. When the fish spawned in nearly steams and the berries ripened close at hand, last year’s guests became this year’s hosts. Aboriginally, potlatch meant that each year the haves gave and the have-nots took. To eat, all a have-not had to do was admit that the rival chief was a great man.[9]

Redistribution has been observed in nearly every primordial society:

Redistribution has a long and variegated history, which leads up almost to modern times. The Bergdama returning from his hunting excursion, the woman coming back from her search for roots, fruit, or leaves are expected to offer the greater part of their spoil for the benefit of the community. In practice, this means that the produce of their activity is shared with the other person who happen to be living with them. Up to this point, the idea of reciprocity prevails: today’s giving will be recompensed by tomorrow’s taking.

Among some tribes, however, there is an intermediary in the person of the headman or other prominent member of the group; it is he who receives and distributes the supplies, especially if they need to be stored. This is redistribution proper.

Obviously the social consequences of such a method of redistribution may be far reaching, since not all societies are as democratic as the primitive hunters. Whether the redistributing is performed by an influential family or an outstanding individual, a ruling aristocracy or a group of bureaucrats, they will often attempt to increase their political power by the manner in which they redistribute the goods.[10]

That last part is important. Harris believes that redistributor big men eventually evolved into hereditary war chiefs. These war chiefs still accumulated surpluses and still played the role of “great provider,” but now they used a portion of the surplus to pay for an retinue that was dependent upon the chief for their livelihood, such as skilled craftsmen, administrators, and magicians. They began to engage in “image building” activities. They also used a portion of the surplus to support larger war parties and long-distance raiding activities that could not be carried out otherwise. The establishment of an entourage and the undertaking of military activity served to enhance their power and prestige. The “great provider” big men slowly transitioned to being warlords.

We begin to see differences emerging between the elite and the “commoners;” for example, only war chiefs can wear certain regalia of office, and no one can sit higher than them.  However, even these chiefs’ ability to exercise coercive power is still limited, because they cannot cut people off from their primary means of subsistence. In the case of the Trobriand Islands, for example, the chief cannot cut people off from the coasts and lagoons where they derive protein from shellfish and seafood. Also, the yams which form the principal crop cannot be stored for more than a few months. One recent paper argued that cereal crops would be more likely to lead to organized, hierarchical state-level societies because they can be appropriated, unlike roots and tubers which are less vulnerable to being appropriated by authorities and last only a few months.

Kula trade necklace (Wikipedia)

Trading of durable goods, as well, seems to have mainly functioned as a way to bind societies together, rather than trying to secure some form of profit. Not only was feasting competitive, but so was gift giving. Such gifts were not trades to exchange, but rather, gifts to give away. Polanyi uses the example of the Kula Ring maintained by the war chiefs of the Trobriand Islands:

The Kula ring spans 18 island communities of the Massim archipelago, including the Trobriand Islands, and involves thousands of individuals. Participants travel at times hundreds of miles by canoe in order to exchange Kula valuables which consist of red shell-disc necklaces  that are traded to the north (circling the ring in clockwise direction) and white shell armbands that are traded in the southern direction (circling counterclockwise). If the opening gift was an armband, then the closing gift must be a necklace and vice versa. The exchange of Kula valuables is also accompanied by the trade in other items known as gimwali (barter). The terms of participation vary from region to region. Whereas on the Trobriand Islands the exchange is monopolised by the chiefs, in Dobu all men can participate.

All Kula valuables are non-use items traded purely for purposes of enhancing one’s social status and prestige. Carefully prescribed customs and traditions surround the ceremonies that accompany the exchanges which establish strong, ideally lifelong relationships between the exchange parties. The act of giving…is a display of the greatness of the giver, accompanied by shows of exaggerated modesty in which the value of what is given is actively played down. Such a partnership involves strong mutual obligations such as hospitality, protection and assistance…a good Kula relationship should be “like a marriage”.

Kula valuables never remain for long in the hands of the recipients; rather, they must be passed on to other partners within a certain amount of time, thus constantly circling around the ring. However, even temporary possession brings prestige and status. Important chiefs can have hundreds of partners while less significant participants may only have fewer than a dozen.[11]

Polanyi identifies two central features to redistribution networks: symmetry and centricity.

Symmetry means that there is certain element of regularity and balance in the exchanges: “…each coastal village on the Trobriand Islands appears to have its counterpart in an inland village, so that the important exchange of breadfruits and fish, though disguised as reciprocal distribution of gifts, and actually disjoint in time, can be organized smoothly. In the Kula trade, too, each individual has his partner on another isle, thus personalizing to a remarkable extent the relationship of reciprocity.” (p 49) We see this continuing in our modern concept of money, which is a reciprocal obligation of debts and credits denominated in some socially accepted unit of account. For each debtor, there is an equal creditor, and so forth. It’s worth noting, however, the extreme lopsided nature of what economists today refer to “trade,” such as between oil-producing nations and the industrialized world, or in manufactured goods between China and the United States.

Centricity means that some sort of centralized institution is required for the redistributive network to function properly: “The institutional pattern of centricity…provides a track for the collection, storage and redistribution of goods and services. The members of a hunting tribe usually deliver the game to the headman for redistribution. It is in the nature of hunting that the output of game is irregular, besides being the result of collective input. Under such conditions as these no other method of sharing is practicable if the group is not to break up after every hunt. Yet in all economies of kind a similar need exists, be the group ever so numerous.” (p. 49). We see this today in the role of banks as central clearinghouses for debits and credits among members of society, whether it be a private or national bank, and central governments which perform redistributive roles, without which no modern society could function for long.

Polanyi concludes:

Symmetry and centricity will meet halfway the needs of reciprocity and redistribution; institutional patterns and principles of behavior are mutually adjusted. As long as social organization runs in its ruts, no individual economic motives need come into play; no shirking of personal effort need be feared; division of labor will automatically be ensured; economic obligations will be duly discharged; and, above all, the material means for an exuberant display of abundance at all public festivals will be provided.

In such a community the idea of profit is barred; higgling and haggling is decried; giving freely is acclaimed as a virtue; the supposed propensity to barter, truck and exchange does not appear. The economic system is, in effect, a mere function of the social organization. [12]

Redistribution is collecting the surplus produced by the society, and parceling out among the members of the society so that there is no want. Another example is given by the practice of the Cherokee in North America:

The Cherokee, like the Iroquois, had matrilineal and matrilocal institusions and practiced external warfare. Their principal crops were maize, beans and squash. At the center of the principal settlements was a large, circular “council house” where the council of chiefs discussed issues involving many villages and where redistributive feasts were held.

The council of chiefs had a supreme chief, or mico, who was the central node in the Cherokee redistributive network. Bartram reported that at harvest time a large crib, identified as the “mico‘s granary,” was erected in each field. “To this each family carries and deposits a certain quantity according to his ability or inclination, or none at all if he so chooses.” The mico‘s granaries functioned as a public treasury…to fly to for succor” in the case of crop failure, as a source of food “to accommodate strangers, or travelers,” and as a military store “when they go forth on hostile expeditions.” Although according to Bartram every citizen enjoyed “the right of free and public access,” commoners clearly had to acknowledge that the store really belonged to the supreme chief since the “treasure is at the disposal of the king or mico,” who had “an exclusive right and ability…to distribute comfort and blessings to the necessitous.”

The fact that the mico, like the Trobriand chief, was far from being a “king” shows up clearly in Bartram’s comment that when outside the council “he associates with the people as a common man, converses with them, and they with him in perfect ease and familiarity.”[13]

Harris argues that such redistributive networks are what likely bound the earliest proto-states together. Most likely a combination of feasting and redistribution networks, such as potlatch, were the foundation for the earliest proto-economies. These would have functioned thousands of years before the invention of anything resembling money or markets. He furthermore concludes that the ancient monuments we see in various societies are the remnants of such ancient redistribution networks:

Redistribution undoubtedly provides the key to the understanding of numerous ancient monuments and structures which for centuries have puzzled scholars and tourists. As we have seen…”big men,” headmen, and chiefs have the capacity to organize labor on behalf of communal enterprises. Among such enterprises was the construction, involving hundreds of workers, of large canoes, buildings, tombs, and monuments.

Colin Renfrew has drawn attention to the rather striking similarity between the circular Cherokee feast center council houses and the mysterious circular buildings whose wooden post-holes have been found within the precincts of neolithic ceremonial enclosures, or “henges,” in Great Britian and northern Europe. The increasingly elaborate burial chambers, earth mounds, and megalithic alignments characteristic of the period from 4000 BC to 2000 BC in Europe have rather precise parallels among the mounds erected by prehistoric inhabitants of the Ohio and Mississippi valleys, the stone burial platforms and monoloithic statues of Polynesia, and the monolithic tombs and memorials of modern Borneo.

All of these constructions played a role in the smooth functioning of pre-state redistributive systems, serving as the locus for redistributive feasts, community rituals dedicated to controlling the forces of nature, and memorials to the generosity and prowess of deceased “big man” hero chiefs. They seem enigmatic only because they are the skeletons, not the substance, of redistributive systems. Since we cannot see the investment of extra labor in agricultural production, monument-building appears to be a kind of irrational obsession among these ancient peoples. But viewed within the living context of a redistributive system, tombs, megaliths, and temples appear as functional components whose costs are slight in comparison with the increased harvests which the ritualized intensification of agricultural production makes possible.[14]

We know, for example, that feasting and monument construction went hand-in-hand in the earliest complex pristine states in the ancient Near East:

Michael Hudson:…The problem in these early periods was how to get labour to work at hard tasks, if not willingly? For 10,000 years there was a labour shortage. If people didn’t want to work hard, they could just move somewhere else. The labour that built temples and big ceremonial sites had to be at least quasi-voluntary even in the Bronze Age c. 2000 BC. Otherwise, people wouldn’t have gone there…There weren’t that many people in the world in 10,000 BC, 3000 BC or even 2000 BC. If a government got too oppressive, or when they would raise the contributions or taxes too high, people would just flee to another area. Or if they were too much indebted the debtors would flee, as they did from Babylonia around 1600 BC. We are talking about free labor, not slave labor.

We found that one reason why people were willing to do building work with hard manual labour was the beer parties. There were huge expenditures on beer. If you’re going to have a lot of people come voluntarily to do something like city building or constructing their own kind of national identity of a palace and walls, you’ve got to have plenty of beer. You also need plenty of meat, with many animals being sacrificed. Archaeologists have found their bones and reconstructed the diets with fair accuracy.

What they found is that the people doing the manual labour on the pyramids, the Mesopotamian temples and city walls and other sites were given a good high protein diet. There were plenty of festivals. The way of integrating these people was by public feasts. This was like creating a peer group to participate in a ceremonial creation of national identity…to begin with, you would have a beer party to get everybody friendly. You would have big feasts, and also these were the major occasions for socialization. All over the world, communal feasts were the primordial way to integrate societies.

Q: So they built a social contract around these feasts, around this sense of belonging by being at this public works event. It sounds like a fascinating way to keep society on track and organise labour so that civilisation would develop on some level. Have you found any indication of a managerial class and how they developed through the chieftains?

A (Michael Hudson): First the priesthoods, then the accountants and scribes. The calendar keepers were usually the chiefs (there may have been “sky chiefs” and “war chiefs” separately, or perhaps their roles were combined as dynastic rulers developed). Most of the religions were cosmological. They wanted to create an integrated cosmology of nature and society (“On earth, as it is in heaven”). Administration was based on the astronomical rhythms of the calendar, lunar and solar cycles. For instance, you typically find a society divided into 12 tribes, as you had in Israel and also in Greece with its amphictyonies. In a division of 12 tribes, each could take turns administering the ceremonial centre for one month out of the year.

The physical design of cities also was based on the calendar. Big cities would have 12 gates. Most cities had maybe four gates, representing the four seasons or the four quarters of the Earth. The outline of the land and the Earth was based on a calendrical cosmology, much like a mandala.

Ceremonial sites such as Stonehenge also were calendars in miniature, designed so that the light would fall on the stones in a particular way on a solstice or equinox. We have this going back into the Ice Age around 30,000 BC. Alex Marshak’s article in our volume on urbanisation found that these sites already in the Ice Age were usually sited on waterways, so that everybody could get to them. They often were located with mountains in the background and in between them the sun would shine in a particular way on the equinox or on the solstice in a particular alignment that occurred just at that calendrical time. They were recreating the cosmos on Earth….The great ceremonial sites from Stonehenge to Turkey were based on the particular equinox or solstice. Chieftains usually would be the calendar keepers. ..The job of the chieftain was to keep the lunar calendar, trace the waxing and waning of the moon to calculate how long the month would be, and to decide that, “Ah, in this month, six months after the equinox, here’s where we have to get together and have everybody come to the gathering and begin working on the big site”. [15]

Eventually, the redistributive war chiefs would become kings, and the payments in kind would become obligations, or as we call them today, taxes. The chieftainships would thus, little by little, evolve into the first “pristine” states:

The larger and denser the population, the larger the redistributive network and the more powerful the redistributor war chief. Under certain circumstances, the exercise of power by the redistributor and his closest followers on the one side and by the ordinary food producers on the other became so unbalanced that for all intents and purposes the redistributor chiefs constituted the principal coercive force in social life. When this happened, contributions to the central store ceased to be voluntary contributions. They became taxes. Farmlands and natural resources ceased to be elements of rightful access. They became dispensations. And redistributors ceased to be chiefs. They became kings. [16]

Essentially, the redistributive economy evolves into a tribute economy. In the tribute economy, a specified portion of goods are to be returned, or services rendered, to the ruling elite of the country in exchange for the ability to farm a certain piece of land. This is often accompanied by the transition of war chiefs and warlords to true kings.
In the tribute economy, rather than the leader by dependent upon the generosity of the food producers, the power relations are inverted: the food producers are dependent upon the generosity of the king.

For example, the potlatch chiefs eventually became supervisors, making others do the work for them, as Marvin Harris points out:

As I have said, the Kaoka redistributor big man works harder, worries more, and consumes less than anybody else in the village. This is not true of the Kwakiutl chief redistributor. The great potlatch chiefs performed the necessary entreprenurial and managerial functions that were necessary for a big potlatch, but apart from an occasional fishing or sea-lion expedition, they left the hardest work to their followers. The greatest potlatch chiefs even had a few war captives working for them as slaves.

Continuing along the evolutionary line leading from…the impoverished worker-entrepreneur big man, to the semihereditary Kwakiutl chiefs, we end up with state-level societies ruled over by hereditary kings who perform no basic industrial or agricultural labor and who keep the most and best of everything for themselves. At the imperial level, exalted divine-right rulers maintain their prestige by building conspicuous palaces, temples, mega-monuments, and validate their right to hereditary privileges against all challengers–not by potlatch, but by force of arms. Reversing  direction, we can go from kings to potlatch chiefs to big men, back to egalitarian lifestyles in which all competitive displays and conspicuous consumption by individuals disappear, and anyone foolish enough to boast about how great he is gets accused of witchcraft and is stoned to death. [17]

Harris uses the example of the Bunyoro of Uganda as a true kingship level society where the tribute economy is in full bloom:

Ruled over by a hereditary chief called the mukama, the Bunyoro numbered about 100,000, occupied an area of 5,000 square miles of that portion of the central lake area of East Africa which is now known as Uganda, and earned their living primarily by raising millet and bananas.

The Bunyoro were organized in into a feudal, but nonetheless authentic state society. Their mukuma was a king, not a mere redistributor chief. The privilege of using all lands and natural resources was a dispensation granted by the mukama to a dozen or so chiefs, who then passed on the dispensation to the commoners. In return for this dispensation, quantities of food, handicrafts, and labor services were funneled up through the power hierarchy into the mukuma‘s headquarters. The mukama in turn directed the use of these goods and services on behalf of state enterprises.

Superficially, the mukama appears to be just another ‘great provider” redistributor chief….But a comparison of the mukama with the Trobriand of Cherokee supreme chief reveals that power relationships have been inverted. The Trobriand and Cherokee chiefs were dependent on the generosity of the food producers; the Bunyoro food producers were dependent on the generosity of the king. The mukama alone could grant or withold permission for blood vengeance, and failure to contribute to the mukama‘s income could result in the loss of one’s lands, banishment, or corporal punishment. Despite his lavish feast-giving and reputation as a “great provider,” the mukama used much of his income to bolster his monopoly over the forces of coercion. With his control over the central grain stores he maintained a permanent palace guard and heaped rewards on warriors who displayed bravery in combat and loyalty to his person. The mukama also spent a considerable portion of the state treasury on what we would today call “image-building” and public relations.

He surrounded himself with numerous officials, priests, magicians, and such regalia keepers as the custodians of spears, of royal graves, of the royal drums, of royal thrones, and of royal crowns, as well as “putters-on” of the royal crowns, cooks, bath attendants, herdsmen, potters, bark-cloth makers, and musicians. Many of the officials had several assistants. Other advisers, diviners, and retainers hung around the court in the hope of being appointed to a chieftainship. Also present were the mukama‘s extensive harem, his many children, and the polygynous menages of his brothers and of other royal personages. To keep his power intact, the mukama and portions of his court made frequent trips throughout Bunyoro land, staying at local palaces maintained at the expense of chiefs and commoners. [18]

In other words, they had become Immortan Joe from Mad Max.

How did such people usurp power? It’s critical to understand that this can only come about through surplus, not scarcity. While economics argues that is about allocating scarce means to unlimited wants, in early societies, all wants were taken care of. Thus, if some accumulated more, none had to go without. In such societies where everyone is provided for, what does it matter if some work a little harder and accumulate a little more, especially if they are sharing the fruits of their labor with the village?

In a study of the salmon-fishing villages of Keatley Creek in British Columbia, archaeologist Brian Hayden wondered how a hierarchy would form from what began as a village of equals. Over time, in these transegalitarian societies, central storage facilities become attached to people’s houses, and certain houses become larger and more elaborate. Certain fishing grounds become the property of prominent families:

As scarcity transitioned to plenty, the aggrandizers were freed to pursue their goals. Their selfish behavior was no longer grounds for excommunication, because everyone was able to get enough to eat — if they were willing to work. Slowly, through a variety of strategies such as bride prices and competitive feasts, aggrandizers consolidated their power. They developed new sorts of relationships based on debt and obligation. Eventually these strategies led to establishment of private property rights over valuable resources, such as the fishing rocks in the Fraser Canyon.[19]


Whereas the norms of fairness among hunter-gatherers are common to all members of the group, in transegalitarian societies fairness is essentially an agreement among a sufficient number of the wealthy and well-connected, who are able to enforce their version of fairness on the society as a whole.

If Brian [Hayden’s] theory is correct, the process is a slippery slope. What begins as favoritism within a small circle of friends becomes cronyism among the members of an in-group. It’s a system that tends to concentrate power in the hands of a few, but it’s simply a consequence of the natural variability in human personality evolving in conditions of surplus. [20]

Harris argues that one final element is required to tip things over the edge to state-level societies. As redistributor chiefs acquired more and more power and became kings, more and more areas came under their control. In places where people could not run away, they had no choice but to submit to increasingly despotic leaders:

Under what circumstances would a conversion of a redistributive chieftainship to a feudal state be likely to occur? To intensification, population growth, warfare, storable grains, and hereditary redistributors, add one more factor: impaction [21]

As Malcolm Webb has pointed out, all of [early state formation] regions contain fertile soils surrounded by zones of sharply reduced agricultural potential. They are, in fact, river valleys or lake systems surrounded by deserts or at very least dry zones.The dependence of ancient Egypt, Mesopotamia and India on the flood plains of the Nile, Tigris-Euphrates, and Indus is well-known. In ancient China conditions of climate, soil, and topography limited intensive forms of agriculture beyond the river margins of the Yellow River Basin. Central highland Mexico south to Tehuantapec is also dry and in addition “suffers from severe rain shadow effects in the highland basins and stream valleys that were the aboriginal population centers.” And finally, the Peruvian coast is notable for the stark contrast between the lush vegetation bordering the short coastal rivers that flow down from the Andes and the desert conditions that prevail everywhere else. All of these regions present special difficulties to villages that might have sought to escape from the growing concentration of power in the hands of overly aggressive redistributor war chiefs.[22]

The ancient Mesopotamian economy, the world’s first state, was organized as a tribute economy based abound centralized city-states and their associated hinterlands. These cities emerged at strategic places along the vast canal system which distributed water to farms across the alluvial plains of the Tigris and Euphrates river basin. All of the land theoretically belonged to the city’s patron deity, with the priests of the deity running a tribute/redistributive economy out of the temple complexes:

A tributary economy is characterized by a political elite extracting goods and labor from primary producers…The Ubaid economy was by and large a tributary economy: most households had to produce mundane goods such as food and cloth, with surplus being exacted by elites who may have couched this as a voluntary religious duty. Surplus may have been stored extra to guard against disaster, but records of this indicate that payouts in emergencies were a fraction of the total collected. By the Middle Uruk era in the 4th millennium, it had become the norm for mundane utilitarian goods to be centrally produced in cities. A larger pool of available specialized labor offered elites who could afford to employ it the opportunity to commission luxury goods; also, the laborers needed employment, as the cities were too densely populated and the fields too far away for the laborers to have grown their own food. Simultaneously, and likely as a result of this, tribute exactions were increasing. This may have precipitated sedentary agriculturalists to vote with their feet and become nomads or move to a different region (these outcasts were later targeted by governments and known as habiru), or else move into the city. [23]

A related concept is the palace economy. This term was coined to describe the economies of pre-classical (Mycenaean) Greece. In a palace economy, goods are also centrally allocated and redistributed. The palace is also able to keep a number of specialists on hand to produce certain goods that are not practical for the households to produce themselves in sufficient quantities. Palace complexes not only stored a large variety of goods for the society, but also exercised a degree of control over economic production:

The term ‘palace economy’ was coined by archaeologists and historians studying the Mycenaean and Minoan civilisations; that is, Bronze Age Greece and Crete. They noticed similarities to the temple-based city states of Mesopotamia, which had already been studied in detail at that point; but enough differences that a new term was desired. As such, strictly speaking the term only applies to that one historical culture. However, the expression is flexible enough that it has subsequently been applied to other societies which seem to share common features, from the stone-age Inca of Peru to the iron-age Kingdom of Dahomey in West Africa, and even the nuclear-age Democratic People’s Republic of Korea.

The most prominent feature of the Mycenaean and Minoan civilisations was the existence of large palace complexes in each major population centre, which were administrative centres and had vast storerooms attached to them. About one-third of the floor area of a typical Cretan palace was devoted to storage, with rooms lined with big clay jars. Another significant area was devoted to large, well-lit but utilitarianly decorated workrooms. Crete and Greece were the first cultures in Europe to introduce writing (although the Mycenaean alphabet, Linear B, was not deciphered until the 1950s and the Cretan alphabet, Linear A, remains a mystery to this day) and the palaces also contain extensive written records.

The palace economy was based on the principles of centralization and redistribution. This was a society which had already invented writing, but not invented money; and its economic and political system reflected that.
The palace collected contributions of staple produce from the surrounding districts – wheat, barley, figs, olive oil, wine, wool, and so forth. These were placed in storage and carefully catalogued by the scribes. They were then distributed back out again to the people, in shares which were apparently based on their social status and value to the community rather than necessarily being equal.

Some of the produce was allocated as rations to specialist full-time craftspeople, such as weavers or metal-workers, who were employed in workshops attached to the palace compound. The goods they produced would also go to the storerooms. Some would be distributed to the people; other items (the more high-status ones) would be given out by the king as gifts to neighbouring kings or rewards to loyal followers.

The stored foodstuffs would also provide a buffer against famine, since they could be kept in the royal granaries until required. As well as regular rations, some of the food would also be put towards grand feasts on ceremonial and/or religious occasions, to which the people would be invited. This seems to have been a key way of keeping their loyalty and cementing communal feelings.

At one point it was speculated that the palace controlled all aspects of the economy; that the people were required to hand over everything they produced to the king’s officials, and received back as rations everything they needed for subsistence. However, this would be impractical in any society larger than a single village, so it’s now generally accepted that local communities were still mostly self-sufficient, and the palace was collecting and redistributing the surpluses rather than the entire production.

There does seem to have been some degree of central control. The palace would tell certain districts to raise sheep for wool, others to grow grapes for wine, and so on, rather than leaving it to their own discretion. The craftspeople who wove cloth and made pottery and cast bronze were accommodated and fed by the palace – in modern terms they were State employees. As such, it could be called a planned economy, but I’m not sure how meaningful the phrase is in a mostly subsistence agricultural society. Farmers have always had to plan when to plant and when to harvest; and the choice of what to grow, at least in ancient times, was largely determined by “what the soil and climate will bear” and “what seeds I have available” rather than any sort of free choice.

It is suggested that the system of palace economy grew out of the principle of reciprocal gift-giving and sharing between rural communities once specialization took place. A single extended family group growing, say, barley on its farm would naturally consider their crop to be family property, and everybody in the family would be given a fair share of the barley. If the next farm over was growing figs, then it was an obvious idea to offer them half of your barley in return for half of their figs, so you could both eat a more varied diet. But when another nearby farm was growing olives, and another was growing grapes for wine, and another was raising sheep, it all got complicated.
At this point, so the theory goes, someone had the bright idea of suggesting that everybody bring their produce to a central point, and he would count it all up and put it into storage, and then give it out again in fair shares so everybody got a little bit of everything. Of course, since it was his idea and he’d be doing all the work, it was only fair for him to skim a little off the top of everybody’s contribution for his own use, wasn’t it? It seems a perfectly reasonable idea: but that’s how monarchy got started. (At least it’s different to the more usual theory of ‘big man with a gang of thugs beating everybody up until they promise to give him their stuff’!) [24]

As Polanyi notes, redistribution formed the basis of the early economies of both states:

All large-scale economies in kind were run with the help of the principle of redistribution. The kingdom of Hammurabi in Babylonia and, in particular, the New Kingdom of Egypt were centralized despotisms of a bureaucratic type founded on such an economy. The household of the patriarchal family was reproduced here on an enormously large scale, while its “communistic” distribution was graded, involving sharply differentiated rations.

A vast number of storehouses was ready to receive the produce of the peasant’s activity, whether he was cattle breeder, hunter, baker, brewer, potter, weaver, or whatever else. The produce was minutely registered and, in so far as it was not consumed locally, transferred from smaller to larger storehouses until it reached the central administration situated at the court of the Pharaoh. There were separate treasure houses for cloth, works of art, ornamental objects, cosmetics, silverware, the royal wardrobe; there were huge grain stores, arsenals, and wine cellars.

But redistribution on the scale practiced by the pyramid builders was not restricted to economies which knew not money. Indeed, all archaic kingdoms made use of metal currencies for the payment of taxes and salaries, but relied for the rest on payments in kind from granaries and warehouses of every description, from which they distributed the most varied goods for use and consumption mainly to the nonproducing part of the population, that is, to the officials, the military, and the leisure class. This was the system practiced in ancient China, in the empire of the Incas, in the kingdoms of India, and also in Babylonia. In these, and many other civilizations of vast economic achievement, an elaborate division of labor was worked by the mechanism of redistribution. [25]

The final element of the primitive economy was the household. The household was never about exchanges in markets, but production for the members of a nuclear or extended family for self-sufficiency. These were Marx’s “pretty commodity producers.” The household economy played a central role in societies from Mesopotamia to China to Ancient Greece:

The third principle, which was destined to play a big role in history and which we will call the principle of householding, consists in production for one’s own use. The Greeks called it oeconomia, the etymon of the word “economy.”…The individualistic savage collecting food and hunting on his own or for his family has never existed…the practice of catering for the needs of one’s household becomes a feature of economic life only on a more advanced level of agriculture; however, even then it has nothing in common either with the motive of gain or with the institution of markets. Its pattern is the closed group. Whether the very different entities of the family or the settlement or the manor formed the self-sufficient unit, the principle was invariably the same, namely, that of producing and storing for the satisfaction of the wants of the members of the group. the principle is as broad in its application as either reciprocity or redistribution. [26]

Scholars call this the oikos economy. The oikos is a self-sufficient household producing commodities for its own use. This type of economy was common in both ancient Greece and Mesopotamia. In the above examples, households would produce for their own use and give some of the tribute to the temple or palace where redistributors would distribute the surplus, tying together the society in webs of mutual assistance and cooperation.

Textual studies have revealed that the Sumerian é and Akkadian bîtum, roughly translated as household, subsumed various entities not included in the modern Western notion of a household. A household meant anything from a nuclear or extended family living under one roof, all the way to grand temples (a deity’s earthly residence), royal palaces and public officials’ wealthy estates. Temples, palaces and wealthy estates are in modernity referred to as oikoi, with each oikos serving as a socioeconomic unit with a dependent and not-kin-related workforce and management, in addition to animals, pastures, fields, orchards, storage facilities and workshops.

The oikos is identifiable as a large structure (or set of related structures) with evidence of: varied craft residues (bead-making, textiles) and sustenance-related production; storage of raw materials and goods; participation in exchange and accounting; and display and/or exercise of force. With its own accounting and production means, these oikos households must have relied on non-kin labor that was paid in rations, and maintained themselves with some measure of force.

What strongly distinguishes the oikos and tributary economies’ archaeological record is that in the oikos economy, non-elites could work in one or more oikoi and receive rations in exchange; thus, many small kin-based households lacked tools and resources for production, with these instead being held by the oikoi. [27]

So, rather than the state being an aberration, the state is primary, and the economy grows out of it, the exact opposite of what libertarians argue. And rather than the wealthy hoarding the best of everything and claiming “redistribution” is a dirty word, or “theft,” redistribution is at the heart of all ancient economies. Neither goods, not land, not labor, were rationed by prices in impersonal markets until the last few centuries in Western Europe. Finally, rather than scarcity which is emphasized by the modern discipline of economics (which forms a modern-day priesthood akin to the high priests of ancient Mesopotamia or the Aztecs), early economies were based on abundance and plenty, with an elimination of want or extreme poverty. People were not dedicating scarce means to unlimited wants; rather thy were dedicating essentially unlimited means to limited wants through the mechanism of the oikos and palace economies.

Polanyi concludes:

Broadly the preposition holds that all economic systems known to us up to the end of feudalism in Western Europe were organized either in the principles of reciprocity or redistribution, or householding, or some combination of the three. These principles were institutionalized with the help of a social organization which, inter alia, made use of the patterns of symmetry, centricity, and autarchy.

In this framework, the orderly production and distribution of goods was secured through a great variety of individual motives disciplined by general principles of behavior. Among these motives gain was not prominent. Custom and law, magic and religion co-operated in inducing the individual to comply with rules of behavior which, eventually, ensured his functioning in the economic system. [28]

Next time, we’ll take a look at some examples of ancient economies around the world and see how money and markets really emerged.


[2] Marvin Harris; Cows, Pigs, Wars and Witches, p. 122

[3] Marvin Harris; Cows, Pigs, Wars and Witches, pp. 123-124

[4] Karl Polanyi; The Great Transformation, p. 46

[5] Marvin Harris; Cows, Pigs, Wars and Witches, p. 117

[6] Marvin Harris; Cows, Pigs, Wars and Witches, p. 127

[7] Marvin Harris; Cows, Pigs, Wars and Witches, p. 118

[8] Marvin Harris; Cows, Pigs, Wars and Witches, pp. 118-119

[9] Marvin Harris; Cows, Pigs, Wars and Witches, pp. 119-120

[10] Karl Polanyi; The Great Transformation, pp. 50-51


[12] Karl Polanyi; The Great Transformation, p. 49

[13] Marvin Harris; Cannibals and Kings, p. 111

[14] Marvin Harris; Cannibals and Kings, pp. 111-112


[16] Marvin Harris; Cannibals and Kings, pp. 113

[17] Marvin Harris; Cows, Pigs, Wars and Witches, pp. 121-122

[18] Marvin Harris; Cannibals and Kings, pp. 113-115



[21] Marvin Harris; Cannibals and Kings, pp. 115

[22] Marvin Harris; Cannibals and Kings, pp. 117



[25] Karl Polanyi; The Great Transformation, pp. 51-52

[26] Karl Polanyi; The Great Transformation, p. 53


[28] Karl Polanyi; The Great Transformation, p. 55

Karl Polanyi and the Modern World – Part 1

Many readers are no doubt already familiar with the work of Karl Polanyi. Polanyi’s writings can be seen as the antidote to libertarian free-market dogma, which has been heavily pushed today by the wealthy via their takeover of much of the economics profession.

It’s a standard tenet of the modern “free market” economics secular religion that money and markets are somehow “natural” expressions of human behavior, and that governments are “unnatural” parasites that simply exist to insert themselves into humans’ instinctive urge to “truck, barter, and exchange.” In their conception, market exchanges are as natural to humans as schools to fish, gaggles to geese, or herds to buffalo. Governments are simply “thugs” who insert themselves into the process to steal from wealthy, productive ants to give to shiftless grasshoppers, and we would better off simply cutting government out of the picture entirely and establishing a pure “market society” where everything under the sun is for sale and traded in voluntary exchanges, with no coercion whatsoever. In fact, they argue, no coercion is even possible in markets, since all market exchanges are totally voluntary exchanges between equals. No one makes an exchange unless both sides will be better off, after all, since each and every one of us are “rational actors.” Economic freedom and political freedom are one and the same. Any restrictions whatsoever placed on the behavior of any market actor is tantamount to “tyranny,” they argue.

To facilitate the “natural” behavior of markets and trading, a neutral medium of exchange item was established long ago by some process of negotiation, absent the state, that would grease the wheels of commerce. This commodity was typically precious metals, the only “real” form of money, in their argument. Money was an invention to facilitate trading, the most “pure” form of human behavior imaginable, they say.

In their conception, in the “primordial economy” of the agricultural village, people traded and exchanged stuff between themselves in voluntary exchanges. Apples for pigs, shoes for chickens, and so forth. There was no coercion involved. The use of gold and silver came about because of the need to trade dissimilar things–the “double coincidence of wants” problem. People just decided to trade their apples for gold one day, with the expectation that they could then trade the gold for what they needed later on, say, chickens.

Then the “Fall” happened when governments were established. Government came along and started “stealing” from the productive elements of society at the point of a sword or a gun in order to feed an unproductive bureaucracy that did nothing but sit around all day and sponge off the hard work of the productive classes, while coming up with a bunch of useless laws and regulations that benefited only themselves. To keep up this state of affairs, they “paid off” the useless-eater classes with “free stuff” confiscated from the “Makers” in order to maintain their power.

Unfortunately for free-marketers, this story has absolutely nothing whatsoever to do actual economic history. Rather, governments are the creators and maintainers of markets, and have been since day one.

How do governments create and establish markets? Polanyi argued that it was by creating what he called “fictitious commodities” out of the foundational elements that arise from human social relations. Thus, rather than being somehow “natural,” markets were forced upon people from above by the commodification of things such as land and labor, and then subjected to the very “unnatural” pecuniary exchanges of these commodities in artificial markets subject to chaotic boom-and-bust cycles that constantly threaten to tear whole societies apart.

Polanyi studied not only economics, but also history and anthropology, two disciplines that have been banished from the modern study of economics. Modern economic “science”  takes the artificial system of money and markets as a given, despite being fairly recent inventions, and studies market exchanges and money flows as if they were some sort of natural phenomenon like gravity or the movement of electrons, rather than human  creations.

This article, Karl Polanyi for President, makes the argument that the campaign of Bernie Sanders, far from being rooted in idea of Marx, is actually rooted in the ideas of Karl Polanyi:

Here’s a story that we hear all the time. The free market is the most effective way of ensuring prosperity. We can ensure that the market is free by getting the government to simply get out of the way, or, at most, fix a few market failures here or provide some economic security. The more parts of life that become like markets, the better. That’s not just because markets are the best for ensuring the good life—it’s that free markets are also a foundation for liberty itself, because economic freedom is political freedom.

Polanyi’s work dismantles this argument in two important ways. The first is to show that markets are planned everywhere they exist. Economic organization is always the result of the state. “Laissez-faire,” he writes, “was planned. . . . [The] laissez-faire economy was the product of deliberate state action.”

Polanyi says that the economy is “embedded” in society—part of social relations—not apart from them. He believes that a pure free market society is a utopian project, and impossible to realize, because people will resist the process of being turned into commodities. In fact, he calls labor a “fictitious commodity,” along with land and money. And this process of turning fictitious commodities into market commodities can only be carried out by the state.

What does he mean by fictitious commodities? Simply that land, labor and capital are not things that people fundamentally traded at all, historically. In order to create a modern capitalist economy, they have to be transformed (hence the title) into things that can be traded like cowrie shells or lapis lazuli.

For example, ca. 7000BC, the residents of Çatalhöyük, one of the earliest Neolithic “proto-cities,” lived near a source of natural obsidian. The obsidian is rare, and residents traded it far and wide, for example, to Mesopotamia. Mesopotamia’s economy was kind of like Japan’s today: they had few natural resources, but a high population (thanks to their complex irrigation system), centralized governments, and a highly skilled workforce. Hence, they had to trade for nearly all the raw materials they needed, from timber, to gemstones, to metals for smithing and smelting (copper and tin). To produce items for trade, they became the earliest “value added” economy where craftsmen would transform the raw materials into valuable items for exchange, like this:


The residents of Çatalhöyük would never have traded in things like land and labor, however. Such a thing would have been totally anathema to them. In fact, land was most likely passed down through generations via ancestral claims, as evidenced by plastered skulls found inside dwellings. They would not have sold their labor either; rather they would have worked cooperatively or in households to produce the food and goods they needed. The only labor “for sale” was due to debt bondage, not labor markets. Interestingly, Çatalhöyük apparently had no extreme class divisions, as evidenced by the identical plans of all the houses and absence of apparent government buildings or temples. People produced goods for their own use, or possibly to trade, yet any conception of capital – money traded for more money – would also have been utterly alien to them.

So how are land, labor and capital turned into commodities that can be bought and sold? By concerted, intentional government action. For example, the Enclosure Movement fenced off the commons and kicked people off their ancestral lands. This made land into a commodity to be traded. The farmers who could no longer support themselves became a landless proletariat who had to sell their labor power to the highest bidder in order to survive. Their labor, once used to sustain the existence of the village, became just another commodity to be bought and sold in a labor market. Necessary goods and services would have been provided for in any society even in the absence of a formal monetary system. Indeed, they have been since the dawn of history. This means that “capital” is just a designation for that which can be bought and sold; it has no independent reality outside of what we assign to it. It is entirely dependent upon a financial system that is created and sustained by the state. These things are embedded in any society’s fundamental social relations, and turning them into commodities for sale is anything but “natural.” This is the central argument of the book. He writes:

Labor is only another name for a human activity which goes with life itself, which in its turn is not produced for sale but for entirely different reasons, nor can that activity be detached from the rest of life, be stored or mobilized; land is only another name for nature, which is not produced by man; actual money, finally, is merely a token of purchasing power which, as a rule, is not produced at all, but comes into being through the mechanism of banking or state finance.

Polanyi argues that a true Market society is a utopian project, as utopian as anything that the Communists of the twentieth century imagined, if not more so. This is because people will resist being turned into commodities. They will rebel, as Number Six did in The Prisoner: “I will not make any deals with you. I’ve resigned. I will not be pushed, filed, stamped, indexed, briefed, debriefed, or numbered! My life is my own!”

Polanyi says that the economy is “embedded” in society—part of social relations—not apart from them. He believes that a pure free market society is a utopian project, and impossible to realize, because people will resist the process of being turned into commodities. In fact, he calls labor a “fictitious commodity,” along with land and money. And this process of turning fictitious commodities into market commodities can only be carried out by the state.

As we know, markets are not inherently stable, but subject to periodic boom-and-bust cycles, manipulation, monopolies and so forth. “Stability is inherently destabilizing.” Rather than “freedom”, markets are a source of coercion and control. This is dramatically different than the libertarian conception of markets being the primary sources of freedom and stability. In fact, ancient societies did everything possible to insulate themselves from the vagaries of markets! Goods were centrally allocated and redistributed. Early societies were mostly self-sufficient. Trading was carried out for natural resources that could not be obtained locally, either by central governments (Egypt, Peru), or by independent actors (Mesopotamia, Canaan). In fact, the earliest trading areas were always kept outside the city gates.

This leads to Polanyi’s other very important insight: If you attempt to turn the fundamental aspects of peoples’ lives into commodities to be bought and sold, you will destroy the very fabric of society!

It’s easy to see why. People need land in order to live, whether as homes or farms. In our society, you need a job in order to survive, but markets are full of periodic gluts and shortages. If you turn land and labor, fundamental things you need in order to survive, into bought-and-sold commodities subject to the random whims of impersonal markets, you will wind up with societies always on the verge of destabilization, chaos and collapse; precisely what we have seen throughout the past one-hundred and fifty years of capitalism:

…the move to markets is inherently destabilizing. Rather than a font of liberty and freedom, markets are also a source of coercion, instability, precarity, and worse. Subjecting all of life to the market wouldn’t result in the freest society but instead one defined by the collapse of social life.

As Polanyi writes:

To allow the market mechanism to be the sole director of the fate of human beings and their natural environment . . . would result in the demolition of society. For the alleged commodity “labor power” cannot be shoved about, used indiscriminately, or even left unused without affecting the human being who happens to be [its] bearer.

. . . In disposing of a man’s labor power the system would, incidentally, dispose of the physical, psychological, and moral entity “man” attached to the tag. Robbed of the protective covering of cultural institutions, human beings would perish from the effects of social exposure [and] social dislocation. . . . Nature would be reduced to its elements, neighborhoods and landscapes defiled,

. . . the power to produce food and raw materials destroyed. Finally, the market administration of purchasing power would periodically liquidate business enterprise, for shortages and surfeits of money would prove as disastrous to business as floods and droughts were in primitive society.

Finally, Polanyi argues that a market society like libertarians imagine is a utopian dream, because any attempt to build a market society will inevitably give rise to a backlash attempting to stop people from being turned into chattel who can be bought and sold like cattle, and land ownrship into a game of Monopoly.  Attempts to fight back against the market society have taken many forms, including socialism, communism, labor movements and periodic “back to the land” movements. These are not unnatural, but rather totally logical responses to attempts to build a “pure” market society on the part of elites:

Polanyi says that a market society is impossible to achieve, in any case, because people resist being turned into commodities. When they are exposed to too much of the market—when markets try to “disembed” from society—people resist, demanding protection from excessive commodification. Lives are more than commodities for those who are living them. This is what Polanyi describes as the “double movement”—the drive for laissez-faire inevitably produces a protective countermovement that insists on shelter from the damaging effects of the market. Welfare and different forms of social insurance are canonical products of this resistance; Polanyi believed fascism was another possible response

And people aren’t the only ones who want to insulate themselves from the vagaries of market forces. Polanyi also argues that enterprises like banks and corporations will always attempt to ensure their stability and continuation by distancing themselves as much as possible from the whims of the Market. This leads to phenomena like bailouts, cronyism, “too big to fail,”  monopolies, copyrights and patents, and so forth. It inevitably leads to a situation where the rich and powerful are protected from market forces, but the common people are exposed to it with no protection; in other words, “socialism for the rich and capitalism for the poor.” It also explains why the “pure” capitalism desired by libertarians is a fantasy. Any state strong enough to create markets is also strong enough to protect selected entities from its deleterious effects.

As Great Britain was the earliest society to undergo this transformation, Polanyi spends a lot of time discussing the Speenhamland system of early industrial England. He argues that markets weren’t created by a dismantling of the rules, but rather a rewriting of them:

In The Great Transformation, Polanyi spends a lot of time discussing the late eighteenth-century and early nineteenth-century English Speenhamland system of poor relief, which essentially provided a basic income, and its replacement with the New Poor Law of 1834, which removed that income support. Historians now doubt that Polanyi accurately characterized some of the problems of Speenhamland, but his core argument remains valid—that changes weren’t “natural,” but simply replaced one set of actors who have power with another. Taking away Speenhamland’s protections made labor a commodity, but that didn’t end state involvement: it was simply that governance was outsourced to the labor market and private actors after the New Poor Law.

The “commodification” of land, labor and goods the into capital can only be achieved by strong, centralized states.  Furthermore, these governments need to be able to provide things like legal support, military support, centralized currency, banking, exchanges, protection, and so forth. This is why capitalist states always have the biggest bureaucracies. The biggest government project in history wasn’t World War Two or the Moon Shot; it was capitalism itself. Marx understood this as well; he declared that governments were “committees for managing the common affairs of the bourgeoisie.”

Economists generally hold that land labor and capital are the three central factors for economic growth under capitalism, and yet, as we have seen, they are all fictitious commodities created by the state itself. Thus capitalism can not happen without the concerted efforts of strong, centralized states. States must carry out this transformation, and then create the conditions necessarily for “self-regulating” markets to be established and sustained form from above.

Thus, far from a “weak” state with as few laws as possible regulating the merchants, only a strong state can assure the transformation necessary to transition into a capitalist power. Furthermore, it takes a strong state in order to maintain it. Capitalism could never have taken off after the fall of Rome, for example. Instead the feudal system embedded the economy in social relationships of mutual obligation (fealty) and self-sufficiency in the from of Manoralism. Trade was once again confined to goods that could not be obtained locally. It was tightly regulated and controlled by the authorities in the form of Champagne fairs held at specific times and in specific places. The power of merchants was strictly circumscribed, just as it was in ancient times. Usury was curtailed.

And China, always a prime candidate for the Industrial Revolution, could never have become a capitalist power. This is not because the state was too powerful, but because it was too weak.

That’s the argument of a book by Peter Vries. Vries points out that, rather than the “weak state” and “free “markets that made Britain an industrial power, it was tightly regulating and controlling the economy that made capitalism possible. China was much closer to the “free market” ideal promoted by libertarians than was England, which is why capitalism could never have taken off there. Here’s a review of Vries by economist Branko Milanovich (emphasis mine):

…[Peter] Vries agrees with Bob Allen’s view that the key ingredients in British industrialization were expensive labor and cheap energy and money. This led to labor-saving innovations which were at the origin of the technological revolution. But England also had, Vries argues, a very strong “infrastructal” state that until 1830 followed protectionist policies and often manipulated tariffs and taxes to help domestic producers, engaging in what would be today viewed as “industrial policy”. Furthermore, England had a big government, high taxes, high government expenditures, “yuge” Navy, enormous debt to GDP ratio, and extravagantly highly paid government officials.

Externally, the country pursued  imperialist and mercantilist policies. Finally, and quite importantly, workers became the proletariat who had to go to the market to sell their labor (that is, lacked the cushion of working on own plot of land), and labor force became “commodified”.

England, in this short sketch, presents four distinguishing features:

  • Favorable factor endowments
  • Capitalism: rational profit-making and commodification of labor
  • Big government
  • Outside projection of power (“fiscal-military, mercantilist and imperialist state”, p. 433).

It is the addition (appendage, as it were) of an acquisitive, determined and big state that distinguishes Vries’ explanation from others which, as he points out, present an idealized Smithian picture of a government of low taxes, strong property rights, and tolerable administration of justice. His views on the importance of the use of force in international trade (on the open seas, “the distinction between peaceful, consensual trade and simple piracy was often very thin if not simply non-existent”, p. 148) makes his views close to Findlay and O’Rourke’s (whose work Vries cites very favorably) and even the world-system theorists. But with the latter, he agrees only that mercantilism and imperialism helped West’s take off but cannot explain it. Which brings us to why China has, as Vries several times mentions, “nil” chance of starting the technological revolution.

Why China did not take off? …Consider the four features that made England take off: they are all reversed in the case of China. China’s labor was cheap, energy and money were expensive. Chinese government was weak, paternalistic and unable to collect taxes. China had no army to speak about and was not engaged in military operations beyond its borders. And finally, production in China was organized in family units: it was the land of household mode of production (p. 204), or as Marx would have said, petty commodity production. Thus, workers could stay at home and work together with their families, often living [close] to the subsistence level. What was lacking was the reserve Army of the unemployed who in order to survive had to “feed” the capitalist engine in the West.

But while China was very unlikely to achieve a technological breakthrough, it was an equally or more market-oriented society as the West, at least as far as market for the consumption goods was concerned; China’s markets were more integrated than European, it conducted greater amount of long-distance trade, and its government was much smaller. So here we would, looking from a neoclassical angle, behold all the ingredients that should help China grow (integrated market, small government, low taxes). Yet  they did not. Qing China, in effect, in Vries’ rendering, sounds much more Smithian than Britain (p. 354) but precisely because it was more Smithian it failed to develop.

The origins of the Great Divergence (globalinequality)

Similarly, Gregory Clark writes:

Medieval England in the years 1200–1500 experienced little or no overall technological advance…Yet medieval England had extraordinary institutional stability. Most individuals enjoyed great security both of their persons and of their property. Markets for goods, labor, capital, and even land were generally free. Indeed if we were to score medieval England using the criteria typically applied by the International Monetary Fund and the World Bank to evaluate the strength of economic incentives, it would rank much higher than all modern high-income economies—including modern England.

A Farewell to Alms, p. 147

So the idea that capitalism and the state are somehow in opposition is the most basic kind of ignorance. It has nothing to do with historical reality. Thus we can see why the “market society” dreamed of by libertarians can never be achieved.

It’s ironic that libertarian followers of Ayn Rand who claim to celebrate individualism and character, are in fact arguing for exactly the opposite! In their conception of society, your value to the Market, reflected in your salary, becomes the only measure of your worth as a human being. And your behavior, rather than being determined your by character, is instead dictated by the impersonal demands of the Market. For example, If you are a CEO, your behavior is determined entirely by Market dictates. It is imperative that your enterprise must grow, and that shareholder value be maximized, and if you need to lay off employees to do this, or cut corners, or whatever, than that is what you must do, because that is what the Market dictates. Individual character has no bearing. If you refuse to do these things, you will be fired and replaced with someone else who will. Anyone who does not subordinate their lives, interests, and behaviors to the “discipline” of the Market will either die or starve (unless they are insulated somehow, such as by a large inheritance). No matter who you are, you are constantly under the obligation to make money, and to engage in the the actions that will make this happen. Can anything be more dehumanizing?

If you think about it for a second, it makes total sense why a market society is an impossibility. Joseph Schumpeter, one of the more influential economists of the twentieth century, persuasively argued that “creative destruction” was an essential feature of capitalist market economies. Yet, logically, this means that, if all of society is subject only to Market forces and nothing else, the entire society itself would be periodically destroyed! Clearly this cannot happen. People will not sit idly by and allow their lives to be periodically destroyed in the service of some abstract conception of the Market. In fact, Schumpeter also argued argued that capitalism was a system that could not be sustained indefinitely. But if capitalism  =  society, then clearly society would be liquidated as well. For example, during the financial crisis, you heard commonly libertarians arguing for Mellonism: “Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate; purge the rot from the system.” But think about it: this literally advocates for the wholesale demolition of society to preserve the Market! It’s clear why this did not happen, nor will ever happen (no doubt libertarians did not picture themselves losing their homes, or standing in the soup kitchen and bread lines).

Rather, Polanyi argued, the market is a tool that must be subordinated to the needs of society, not vice versa. In fact, this is the only realistic option. A true market society, such as the ones libertarians dream of, is an impossibility, a fantasy, a pipe dream. Any such society would quickly degenerate into chaos and tyranny, not unleash prosperity.

And this brings us back to the populist backlash against Neoliberalism around the world. That’s what we’ll be talking about next time.