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.

[1] http://www.nakedcapitalism.com/2011/08/what-is-debt-%E2%80%93-an-interview-with-economic-anthropologist-david-graeber.html

[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

[11] https://en.wikipedia.org/wiki/Kula_ring

[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

[15] http://michael-hudson.com/2015/04/sovereignty-in-the-ancient-near-east/

[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

[19] https://psmag.com/seeing-fairness-evolve-10c0443687f0#.s0hxg0tc5

[20] https://psmag.com/conclusion-the-judgment-of-fairness-3677740ed398#.lbfu4byme

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

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

[23] http://studentreader.com/tributary-and-oikos-economies-of-ancient-mesopotamia/

[24] https://www.quora.com/What-is-Palace-Economy

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

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

[27] http://studentreader.com/tributary-and-oikos-economies-of-ancient-mesopotamia/

[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.