Arnold Kling  

My Most Incorrect Belief

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Gavin Kennedy and Mark Koyama are still beating me to a pulp. Koyama writes,


Polanyi and the historians and sociologists who have been inspired by Polanyi mainly claim that markets didn't exist before 1800 or 1750 because they don't know what markets are. Not understanding that the market simply refers to the existence of institutions that enable voluntary trade between strangers, they identify markets with actual market places. As McCloskey notes 'No economist would suppose that the lack of an agora or forum shows that an economy is not organized by markets'. What is surprising is that an economist like Kling would buy into this.

I object! I have not adopted the Polanyi thesis. It's my open stupid idea, gosh darn it.

Read James M. McPherson's description of America around 1800. Apart from the seaport cities, you have people living as subsistence farmers, making their own clothes, with their lives and economic activity constrained to a twenty mile radius. To me, such people are not in a market economy.

You have a market economy when there is sufficient division of labor that you can work voluntarily to produce something for exchange. When you are eating the way Michael Pollain says you should eat, you are not in a market economy.

Imagine yourself in the environment, which existed until about 300 years ago, in which the overwhelming challenge was to obtain food. Not many people can make a living in art, science, education, or software development, because people need to eat. So you have to be engaged in primary food production. That means you need land, and you can't live close to a lot of people. There are not many people to trade with. There is very little surplus to trade. Maybe every six months or so you have a festival where you get together with people from miles around, get drunk, and swap a few bowls, to give future archaeologists something to get excited about.

If you're really sophisticated and disciplined, maybe you organize an army that conquers lots of farmers. They pay taxes (in the form of food), you use the taxes to feed soldiers and slaves. The latter build cities. Some of the children of the elite soldiers, knowing that their parents will feed them, go into art, science, software development, and so on, which gets the future archaeologists even more pumped up.

But the farmers don't voluntarily produce for sale, as in a market economy. That's my narrative. Which is wrong. I know. Stop humiliating me over it.


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CATEGORIES: Economic History



COMMENTS (12 to date)
adina writes:

I'd say that you're still participating in the market if you're eating the way Michael Pollan recommends. You are making choices based on your priorities, which in this case, is being conscientious, or (to the more cynical), signaling to others that you are conscientious, whether or not that is actually the case. I suppose this is more of an issue of semantics, in that the central questions is "How does one define 'markets'?" However, any situation where someone adapts to his surroundings, rather than obeying an unjust authority (to some, including government), in order to maximize his well-being, ought to mean that he's participating in markets.

Arnold Kling writes:

Michael Pollain says you should grow and hunt your own food.

Umm... is this just a semantic quibble? Or is there some important point embedded in this which I am missing?

Gavin Kennedy writes:

Hi Arnold

I did not mean to 'beat you up'. My target was, and remains, Karl Polanyi.

The 'propensity to truck, barter, and exchange' was embedded in human behaviour (according to Adam Smith) deep within prehistory. It occurs in non-monetised subsistence economies, including 'frontier' economies.

My neighbours in France, selectively exchange their labour and machinery among themselves, especially during the vindage (when the grapes are picked) without cash changing hands and it does not appear in National Income statistics. I assume something similar used to happen among 'Moonshiners' in the Appalachians...

Early British colonies in North America traded between the motherland and themselves in cargo- sized amounts, which percolated inwards over time. The 'second-hand' market in artifacts, capital goods and materials is often neglected by Historians (see Smith's remarks about King James Vi's marriage bed ending its days in an Inn in Fife.).

Monetised markets evolve over time but are rarely totally absent within a territory.

I know now you agree; hence, I shall withdraw unreservedly and gracefully, and with apologies for indicting you for 'errors' you are not committing, and preserve my ire for Polanyi and Co.

Kurbla writes:

Farmers trade sporadically, they cannot produce lot more than they need. Even if they can - they cannot store their products, that mostly rot in a short time. There are exceptions, but only exceptions.

However, shepherds can do that. Their herds can grow almost without limits. If herd is big enough they can employ other shepherds and coordinate them - these wealthy shepherds can be seen as the first capitalists. Cultures stagnated for hundreds of thousands years on hunting, collecting or farming, but once you had shepherds, soon you had civilization.

That's what my prof of archeology told, I never consulted any literature about that.

Tracy W writes:

Imagine yourself in the environment, which existed until about 300 years ago, in which the overwhelming challenge was to obtain food.

It may have been that the overwhelming challenge was to obtain food. But for many latitudes, if you wanted to survive, warm clothing was also vital. So if you wanted to survive, you needed to have both food and clothing. Thus creating an incentive for a market economy purely for survival's sake.

The wool trade was very important in medieval England. See http://www.localhistory.scit.wlv.ac.uk/articles/electronic/wool.htm

So you have to be engaged in primary food production. That means you need land, and you can't live close to a lot of people.

English villages in fertile areas were placed at distances of about 1 to 2 miles.

That means you need land, and you can't live close to a lot of people. There are not many people to trade with.

Unless of course some bright spark has the idea of moving goods between all the people living in their dispersed properties - which in very many cases weren't that dispersed. Thus creating the job of the peddler. Or, for more highly-occupated routes, merchants travelling with packtrains of horses. Or barges travelling up and down the river.

Maybe every six months or so you have a festival where you get together with people from miles around, get drunk, and swap a few bowls, to give future archaeologists something to get excited about.

And get some new tools for your farm. And a new coat for your son, as you can't both wear the same coat. And get your cow serviced by the stud bull. And buy a new piglet to feed up over the summer.

Farming now is extremely involved in markets. Why wouldn't it have been in medieval times? Just because you have to farm doesn't mean you don't participate in markets.

I mean, how did Christainity get started in your version of the world? Or peasant revolts? Or the Children's Crusade? If no one travels, how did those things happened? If people do travel, why wouldn't they trade?

They pay taxes (in the form of food)

If the people who pay taxes don't have enough food left after the taxes to live on they will all eventually starve to death and your empire will collapse at the end of the generation. If the people who pay taxes do have enough left to live on, then they did have a surplus before you came along and started extracting it. So why wouldn't they have traded that surplus?

Jody writes:

In the hopes of clarifying, I don't think that Arnold is arguing that some markets and some exchange existed throughout history.

He's arguing that a market economy did not exist where he's defined a market economy as an economy in which the majority of economic activity takes place in a market.

What would be cool to see is a plot over time of the historical fractions of the world's economy that is market based (versus subsistence and command-based). Would also be cool to see this for selected countries as well (e.g., China, India, US, Britain, Germany, France, Italy).

fundamentalist writes:

I think Kling is right, too. Anyone who has visited a 3rd world country recognizes the differences between their markets and ours. Third world countries have the traditional markets that have existed from the beginning of history where transactions require extensive haggling over price and transaction costs are high, the process is highly personal and quality is poor. Modern, capitalistic markets have impersonal exchange with low transaction costs and high degrees of honesty and quality. The institutions that support each are very different. Anyone who argues that modern markets were widespread before 1800 is just nuts.

Bob Knaus writes:

In a different attempt to square the circle... it is surprising how financially sophisticated farmers could be in the absence of "modern markets" as defined by Arnold.

Ancestors on both sides of my family arrived in America in the mid 1700s to farm. They spoke German for 2 or 3 generations (assimilation wasn't as quick back then) and they were somewhat removed from the "English" merchant and governing class. Yet they held mortgages, produced crops for distant shipment (see "Whiskey Rebellion"), and considered capital appreciation on their farmland to be a key reason for farming.

Rural? Yes. Rubes? No.

Mark writes:

The model is a good one. It resembles what Jan de Vries termed coercive market participation. When a bunch of violance specialists trade defence provision for agricultural goods it is basically indistinguishable from naked extortion.

The only problem is that it doesn't apply to all societies before 1800! It applies to much of the world before 1800 but there were plenty of genuine market economies too.

Willem writes:

17th century Holland comes to mind as a counter example. Political and religious freedom, upwards social mobility, an expanding secondary sector, urbanisation. See North and Thomas 'The Rise of the Western World: A New Economic History'.

Also, growth is incremental. Even if the absolute amount of trade and specialization was low, their relative importance for wealth could be big.

Tracy W writes:

He's arguing that a market economy did not exist where he's defined a market economy as an economy in which the majority of economic activity takes place in a market.

What does he mean then when he says that the majority of economic activity takes place in a market?

If I grow crops for market, I may only need to go to market once a year, when I sell my surplus. But the price I get at that market for what sort of crops determines what I grow and thus my activity for the whole year.

How about if I hire farm labourers for the year at that same fair? Are they engaged in market activity for the whole year or not?

If I compare the money my daughter could earn as a servant in the town to the additional value of her work on the home farm, and send her off to work in the town is she engaged in a market activity? If yes, if I keep her at home because her work at home is more valuable than what she could earn in the town, is she also engaged in a market activity?

If I barter my goods rather than sell them for money, is that market activity or not?

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