October 15, 2003

The "Embedded" Economy Thesis

Something I wrote back in 1997: worth dredging up...

I have been following the discussion of Karl Polanyi, and I have been worried because it seems to me that of readers are missing the point. I think that Polanyi does have an interesting argument. But it is being hidden from many because of his terminology. The underlying point is that it used to be the case--painting with a very broad brush--that what happened in economic transactions was in large part determined and guided by sociological and political relationships, but that now--again painting with a very broad brush--the principal direction of influence it is reversed: politics and sociology are more shaped by economic factors than they in turn manage to shape what happens in economic transactions.

In Polanyi's vocabulary, this is a transformation from an "embedded" to a "market" economy. And many readers do not hear Polanyi's point because their first reaction is: "We have had markets since time out of mind: what was the agora of Periclean Athens?"

I'm not sure how true Polanyi's point really is. But I do think it is worth thinking about.

What does Polanyi mean by a claim that a market is "embedded" in a society? I think of it this way: In the past two weeks my wife and I have hired three young women--a 22 year old, a 16 year old, and a 12 year old.

  • The 22 year old is a recent graduate of Berkeley, just back in this Bayarea magalopolis from several months in China, where she was a film producer's assistant. We hired her to give our children swimming lessons (and she occasionally babysits as well). She is a superb swimming teacher and our children adore her. We pay her $40 an hour as a swimming teacher; we pay her $10 an hour as a babysitter.
  • The 16 year old just moved to Bayarea from Mexico city for her last two years of high school. She and her parents moved up here so that she could get a U.S. education for the lats two years of high school; they are living with her sister, who works as an architect in San Francisco. We employ her as an evening babysitter. We pay her $7 an hour as an evening babysitter.
  • The 12 year old lives in our neighborhood. She put up a sign at the local playground saying that she was a responsible house watcher, plant waterer, and pet feeder who was eager to earn money. We hired her to watch our house while we went on vacation. Her mother would not let us pay her more than $4 an hour.

We were matched--by accident--with the 22 year old last summer, when we registered for swimming lessons through Berkeley. When we employ her on our own, we pay her what we would have paid had we hired her through Berkeley. This gives her triple the hourly income she would receive were she still working as a swim teacher for Berkeley. But we are in the business of paying a fair price for her services as a swim teacher: we were impressed with and grateful to her for the job she did last summer, and so hired her because we feel we owe her for making our children happy and because she is looking for income. So we pay her a fair price--even though we could get a low-overhead private swim teacher for much less--because our relationship has a large element that is probably best seen as a gift exchange.

We found the 16 year old via reference in conversations at the playground. We pay her $7 an hour--when the market equilibrium rate, to the extent there is a market, is closer to $5.50 an hour--because we want her to value her employment relationship with us and contribute more than just her raw labor power to the job of babysitting our children. You might say that we are in an "efficiency wage" equilibrium. Or you might say that we want to be the kind of parents who pay their babysitters a generous wage.

The 12 year old is trying to earn money on her own for the first time. The principal determinants of her wage are what her parents will let her accept--they don't want her to believe too soon that getting money from work is incredibly easy. Yet from our perspective the amount we pay her is a very small fraction of the cost to us in hassle and in dollars of finding an alternative person to look in on the house.

In none of these cases were the terms and conditions of employment determined by anything like supply-and-demand equilibrium in a competitive auction market. In all of these cases what we pay is determined much more by what we feel is an appropriate level of earnings for someone of her age and skill in that employment--hence the 4:1 gap between wages as a swim teacher and wages as a babysitter; hence the 3:2 gap between what we pay a 22 year old and what we pay a 16 year old babysitter. If you increased the supply of those who wanted to work as swim teachers or babysitters, I don't think it would affect the wages we pay.

Thus when my household enters the babysitter market as an employer of labor, the terms and conditions on which we hire those who we find in the matching process are determined not by the market's equilibrium condition but by sociology: what wage is appropriate for someone of the age that we are hiring? Economic conditions enter at one remove: where do beliefs about appropriate wages come from, after all? But they enter only at one remove: we pay different people different wages for the same work. In a market in which people like us dominate, changes in relative supplies of those wishing to babysit would probably produce changes in the average number of hours worked per babysitter, but probably not in changes in tems and conditions of employment.

By contrast, when my household enters the grocery-buying market, we choose which supermarket to go to by an economic--not a sociological--process. Different supermarkets offer different price-quality bundles, from Lucky the Low Price Leader to Safeway, Apple Market, and Diablo Foods. Not to mention Costco, with very low prices but a small selection of types of goods fully thirty minutes away. Week by week--as they change prices and specials, and as our inventory of groceries and appetites change--we switch from one to the other and back again. Our participation in the grocery market is characteristic of what Polanyi would call amarket economy: it is not "embedded" in society, and the sociology of our relationships and expectations has little to do with the prices we pay or with where we shop.

Polanyi's claim, as best as I can figure it out, is that over the past five centuries northwestern Europe and its offshoots have shifted from a situation in which the bulk of economic life is kind of like my household hiring babysitters to a situation in which the bulk of economic life is kind of like my household hiring groceries. Five hundred years ago a youth became a blacksmith because the old blacksmith owed his uncle Fred a favor, and to repay it the blacksmith took him on as his apprentice and successor. Five hundred years ago when flour was scarce, the town baker made the loaves smaller and then limited quantities sold to customers. The baker did not quadruple the price--and if the baker did, the townsmen were likely to riot. Today flour is never scarce, but coffee sometimes is: but none of the supermarkets limit quantities of anything save their loss-leaders. Today people choose occupations in large part on the basis of the wages those occupations pay: uncle Fred and the opening of a spot as the Blacksmith's apprentice have less to do with it.

Now it should be obvious that Polanyi's vision is one of ideal types: abstracted generalities with features exaggerated for effect. Neither his "market economy" nor his "embedded economy" has ever existed in pure form anywhere. It is not the case that business and economic relationships today are ruthlessly and invariably governed by the cash nexus, cost minimization, and revenue maximization. (One of our supermarkets, Safeway, is spending a lot of time and money on information systems to allow their baggers to address their customers by name in real time: unfortunately, they call me "Mr. Bradford" instead of "Mr. DeLong.") It was never the case that supply-and-demand played no role, and sociological expectations of what is due someone of a particular status and caste the complete role, in setting the prices at which transactions took place.

But you can convince yourself, if you want to, that there has been a shift. To Aquinas or Aristotle, overcharging or underpaying relative to the "just price" is a kind of theft: a violation of the moral order that underlies hte universe. To us, a thing is worth what someone will pay for it.

There are still, of course, echoes of the old "embedded" conception. Consider this exchange that ex-Labor Secretary Robert Reich reports with Senator (R-Ut) Robert Bennett:

"The minimum wage should be abolished," he sys with utter assurance. "If someone isn't worth $4.25 an hour, he should be paid less."

Hallelujah! He said it! It's now public! We'e not really engaged in a debate over how much the minimum wage should be raised (in fact, its real value has continued to drop); it's about whether there should be a minimum at all. The other side believes that people should be paid no more than what they're worth on the market.

"I completely disagree," I say. "Every hard-working American is worth at least a wage that lifts a family out of dire poverty."

Note the key word: worth. He used it first. It's a moral concept as well as an economic one. Can someone's labor really be worth less than $4.25 an hour? In purely economic terms, surely it can. But in moral terms, the answer's far from clear.

And herein lies the importance of having this debate: It crystallizes a much larger debate about whether Americans are mere participants in an impersonal market or are members of a common culture and society. Raising the minimum wage is a good thing to do. But quite apart from the wisdom of raising it, having a sharp public discussion about it is worthwhile. It helps Ameicans clarify their beliefs about what we owe one another as members of the same society.

--Robert B. Reich, Locked in the Cabinet (New York: Knopf, 1997), pp. 232-3.

Robert Reich and Karl Polanyi would get along very well.

Now I am not sure that Polanyi is right: it is not clear to me that the shift has been as large as he thinks it has. And when "embeddedness" was used in the past to enforce transactions at a "just price", it usually seems to me to have been cover for thugs-with-spears (or thugs-with-idols) getting things on favorable terms from merchants, artisans, and peasants: it is far from clear that a decline in "embeddedness" is a bad thing.

But I do think it is an interesting point.

I would add that if we take a step back, and wonder "Where do ideas of just prices come from?" we find that they come from three sources:

  1. From force--that because I'm better fed than you and know how to use weapons, you owe me a good share of your farm produce.
  2. From fraud--that because I can get you into heaven or keep the space monsters from eating the sun, you owe me a good share of your farm produce.
  3. From long-run average market prices--that because it takes twice as much of society's resources to train and equip a blacksmith as it does to train and equip a farmer, the blacksmith's products should sell for twice as much.

I think that it is important to recognize that long-run social resource costs are themselves an input into the "embedding" process.

Posted by DeLong at October 15, 2003 02:50 PM | TrackBack

Comments

I'm at work so I don't have my copy of Trade and Market in the Early Empires. It's a bunch of essays edited by Polanyi, with a few chapters by Polanyi himself. One of these examines in great detail the nature of transactions in the Athenian agora, and establishes the high degree of social control over such transactions. The concept of a Walrasian market where tatonnement was fluid is erroneous, according to Polanyi.

Posted by: James R MacLean on October 15, 2003 03:01 PM

I'm at work so I don't have my copy of Trade and Market in the Early Empires. It's a bunch of essays edited by Polanyi, with a few chapters by Polanyi himself. One of these examines in great detail the nature of transactions in the Athenian agora, and establishes the high degree of social control over such transactions. The concept of a Walrasian market where tatonnement was fluid is erroneous, according to Polanyi.

Posted by: James R MacLean on October 15, 2003 03:06 PM

But isn't Polanyi's point generally true, that to the extent we transact with someone with whom we have some other/prior relationship beyond buyer and seller, we often pay more than a competitive, market-determined price?

You sell your car to a friend for less than what you'd charge a stranger. You lend money to your kids at zero interest (and sometimes forgive the principal). Each as non-economic considerations embedded in it.

I would imagine that few transaction 500 years ago were at terms that approximate a market economy.
In an ec

Posted by: alex on October 15, 2003 04:51 PM

The "embedded" economy relies on personal relationships between the parties to an exchange. But the modern world is built on economic exchanges that cannot have a personal element.

You mention supermarkets. Its possible to imagine a world in which small local grocers, embedded in communities, familiar on a personal level with all of their customers, might charge different prices to different people depending on non-economic circumstances, and where people might pass up lower prices from a rival grocer to continue doing business with the grocer they know and trust and feel a personal bond to. But such a grocer could never, not in a million years, offer the choices of products that a Safeway carries. He could never, not in a million years, offer the overall quality of goods that Safeway offers. He could never, not in a million years, offer goods at prices even remotely as low as those offered by Safeway.

You might be willing to pay a trusted "good kid" a little more than a market wage to do babysitting. But if you need ulcer medicine, you can't very well pay the plucky 17 year old down the street to brew you up a batch. If you need a new car, you can't pay the college-age daughter of a friend of a friend a nice hourly rate to mine some ore, smelt it into steel, fabricate it into auto parts, and assemble a car for you.

The things that define the material standard of living for modern people are tremendously complex, so complex that they can only be produced and delivered by huge organizations. And we're just not hardwired to feel the love for huge organizations the way we are for members of our communities.

Posted by: sd on October 15, 2003 04:57 PM

“All fixed, fast frozen relations, with their train of ancient and venerable prejudices and opinions, are swept away, all new-formed ones become antiquated before they can ossify. All that is solid melts into air, all that is holy is profaned ...” DAMN the man.

Is Polyani a Marxist?

Posted by: Randolph Fritz on October 15, 2003 05:16 PM

He's not a Marxist, but he wrestled with Marx for his entire life...

Posted by: Brad DeLong on October 15, 2003 05:26 PM

It does not appear to be true that we have had markets since time out of mind, since we can safely assume that the first societies were small nonliterate tribal cultures. And these were indeed purely embedded economies, in his terminology. The shift from embeddedness to the market has been huge.

To sort this out, the best source is a posthumous collection of Polanyi essays edited by Harry Pearson, "The Livelihood of Man" (1977). Polanyi distinguished THREE kinds of economic transactions, and I believe he referred to the first two as “embedded.” We could list them in "anthropological" order, from the earliest development to the latest:

1) RECIPROCITY, which happens between SYMMETRICAL relations, and was the dominant, even the only, form in nonliterate tribal cultures. Example: In almost all tribal cultures examined, daily foodstuffs were shared around, branching from hand to hand according to extended familial relationships. No pricing was involved, nor would it have been allowed! Even in tribes with ritual status-money (e.g. N.W. Coast's Kwakiutl), paying for daily food was simply unthinkable--the potlatch was a ritual apart. A more hierarchically involved, and more interesting, example: "brideprice" in the Nuer tribe of Africa: In a marriage between clans, the uncles of the groom presented cattle (their most valuable capital) to the uncles of the bride, as symbolic payment for her passage into the groom's clan. Despite the term "brideprice", this was not priced--although no doubt status was at issue, in making the presentation as big as possible at the public ceremony. The reciprocity here was between the male elders of the clans, and as time and marriages proceeded, the cattle were spread around quite evenly among the clans, reinforcing the social bond of the whole tribe--thus, symmetrical.

Although Polanyi does not, to my memory, mention gift exchange in his books, he would certainly have included it, for the most part, under Reciprocity, because gifting only continues in a society where you would accept a reciprocation. But some tribal systems developed complicated gifting actors under the rubric of the “big man” (e.g some of the Pacific Island tribes, and many others,even in North America). The big man had constantly to turn over his accruing wealth to others to maintain status--keeping it to himself was a no-go. This is a kind of Redistributive notion, next.

2) REDISTRIBUTION, which requires CENTRICITY. In our times an example is taxation and expenditure; recently the Soviets tried communism. It is easy to believe, although perhaps hard to prove, that redistribution was the dominant transaction in the smaller kingdoms and the earliest empires, as the "big man" function changed into "chief" or "king" when systems grew larger than, say, 10,000 people, and acephalous polities ran into constant disagreement. Polanyi makes much of Aristotle's comment that "the Persians had no marketplaces", although some contemporary historians now think they had "just price" markets. The "source" of the just price may be the confluence of the older tribal notion that everyone gets to eat (pricing of daily food had been simply unexceptable) plus the invention of numbered clay tokens to help the king account his storehouses (which led to the development of mathematics on one hand and denominated coins on the other). It was an easier way to exchange, and remained acceptable to all as long as the price remained fixed--only to be changed by the king in drastic or long-term swings of supply and demand.

3) MARKET EXCHANGE, between ANY TWO TRANSACTORS who have the means. Polanyi guesses, again with some support from Aristotle, that the seed of this was planted with the single long-distance traders between large societies that had different just-prices, so that a commodity could be quietly bought cheap and sold dear, or arbitraged. One of the main points of “The Great Transformation” is that the “total market economy” of land, labor, capital--which economists seem to posit for all time--is itself a social institution, and started with the Enclosure Laws.

Hiring a babysitter, it seems to me, is a mix of the three.

Posted by: Lee A. on October 15, 2003 07:01 PM

One should not commit the anachronistic fallacy of attributing a modern abstract/impersonal functionally based understanding, which itself developed along with the characteristic social structures of modernity, to pre-modern people who lived in much more restricted conditions and hence had a necessarily more concretistic mode of interpreting the world. After the virtual collapse of trade in Europe in the autarchic/anarchic feudal period, the revival of trade lead to de facto alliances between guilds/merchants/cities and emerging monarchical powers against the centrifugal forces of the feudal aristocracy that were also becoming increasingly indebted by the emergent monetary economy. The result was the emergence of the absolutist monarchical state, which established a regulatory regime partly by delegating some of its authority to social groups such as guilds and merchant groups and thereby began to establish a domestic market. Though these mercantilist states partly used older personalist/concretist feudal modes of attribution to disguise their relations, this regulatory regime was actually largely based on deals between the state and various social groups which the state balanced out, which thus included the extraction of rents by various caste and status groups. But without such a regime, the development of the market, such as it occurred during this period, would not have been possible, especially with respect to the enforcement of laws which the emergent contracting and banking practices that had developed initially in cities independently from the state began to rely upon. And it should also be taken into account that, though greatly increased in volume, the means of transport remained rather restricted and that labor productivity remained quite low. Most of the actual increase in wealth (the net increase in the real surplus product) during this early modern, mercantilist period would have been attributable to merchant activities, such effects of comparative advantage as were not prohibited, improved distributions from market exchanges from highly inefficient initial distributions and from an increase in the division of labor with expanded markets under relatively unchanging technical conditions. But one can conjecture that the real cost/price structures- (of, course, there was for a time huge monetary inflation due to Spanish bullion)- would have been relatively stable, i.e. not subject to rapid change.

For the functionally autonomous market economy to arise what was required was industrialization. It all boils down to the invention of the steam engine, which for the first time made it economical to mine coal, since the literal horse power used up to then to pump water from the inevitably flooding mines was expensive, whereas with the steam engine one could, in effect, use coal to mine coal. And, of course, since coal is a more intensely burning fuel than wood, this led straight away to improvements in metallurgy, which allowed for the manufacture of machinery, once invented, which, in turn, could be powered by steam engines, which, in turn, could be applied to transport, etc. ( I read somewhere that, if the steam engine had not been invented, due to increased demand for wood and hence increased deforestation, the commercial economy of Europe such as it had developed up to that time would have collapsed within one hundred years do to a severe shortage of wood.) In short, it was a gradual cascade of technical deveolpments that led to the emergence of industrial capitalism and it is only then that, due to the increased pace of productivity increases/cost reductions, a functionally autonomous market economy could take hold and become, in its functional interlock with other social domains, the dominant functional subsystem driving social development.

It seems to me that it is the early modern mercantilist economy, which back then could still- though just barely- be conceived in the traditional terms of the Aristotelian oikos, that deserves the appellation "embedded economy". The real or imaginary personal relations, at once hyper-moralized and violent, that define the feudal system could scarcely be called an economy, -(though note the shift in the term "personal"- to us it is tantamount to "private" , whereas back then it meant overwhelmingly "public")- whereas the modern industrial capitalist economy, disemburdened of all moral and normative considerations, is subject only to functional constraints, even as it progressively cannibalizes other social domains. It seems to me that the core question that remains to us is thus: whether and to what extent we can still compensate for the disadvantages that the overwhelming advantages of the industrial capitalist market economy bring to us?

Posted by: john c. halasz on October 15, 2003 07:11 PM

On second thought, I take it back. Hiring a babysitter is not an "embedded" transaction, at least in Polanyi's terms.

It is not Reciprocity because there is no pre-existing symmetrical relationship in society whereby you may expect payment in the same way--unless you count the loose idea that the neighbors may hire your child someday: "Reciprocity describes the movement of goods and services, or the disposal over them, between corresponding points of a symmetrical relationship." (Polanyi, The Livelihood of Man, p.36)

And it is not Redistribution, which is clearly defined as "a movement towards a center and out of it again, whether the objects are physically moved or only the disposition over them has shifted." (Ibid.)

Hiring a babysitter is an Exchange, which "represents a movement in a similar sense, but this time between any two dispersed or random points within a system." (Ibid.)

But hiring a babysitter not an exchange in which supply and demand determines the price completely.

The confusion is precisely this: Polanyi distinguishes embedded economies from market economies, NOT from supply and demand. Professor DeLong ends with: "I think it is important to recognize that long-run social resource costs are themselves an input into the embedding process." But surely Polanyi would never have argued otherwise. There can be no doubt that nonliterate, nonmarket embedded tribal economies are constrained by supply and demand: the Nuer have only so many head of cattle for the brideprice. They are also constrained by physics, since gravity holds them to the planet.

We suppose "supply and demand" always means there's a "market" where it's being thrashed out. (And that if there isn't a market, we should create one. But that's a different discussion.)

"Embeddedness" in Polanyi is a (rather loose) metaphor to visualize that the first two types of transactions were formed by mapping out of pre-existing socio-political structures: and that the coming of the market economy came on top, and has very nearly atomized these.

While Mr. Halasz might argue--and again Polanyi probably wouldn't have disagreed, though at this point we may as well discard the terminology altogether--that the market economy is "embedded" in another power structure, which it, too, abets.

Posted by: Lee A. on October 15, 2003 08:50 PM

You can keep the space monsters from eating the sun?
Cool ...

Posted by: pilgrim on October 15, 2003 09:25 PM

It's just not right to say that the industrial capitalist economy's disregard for moral and normative considerations is cannibalizing other social domains. In fact, it's not even true that a capitalist economy disregards moral and normative considerations ("trade, don't steal" is the governing principle of any healthy market economy). If there is evidence that societies become more violent, more immoral, and more subject to the exercise of arbitrary power a they become more market-oriented, I would be very interested to see it.

In fact, the experimental evidence seems to go the other way. Look at the cross-cultural study that Bowles, Gintis, and a host of other anthropologists and economists did (you can get a copy of it here: www.sscnet.ucla.edu/anthro/faculty/ boyd/MacGamesBBS.pdf) where they looked at the way members of fifteen different small-scale societies play the Ultimatum Game, the Dictator Game, and the Public Goods game.

There was a wide variation in the way the different cultures played the game. But the more a culture depended on the market for its economic well-being, the more likely its members were to play the games in what Bowles and Gintis call a "prosocial" manner -- which means they displayed a concern with fairness and reciprocity, rather than pursuing naked self-interest. Their formulation is: more market integration, more prosocial behavior.

Montesquieu or Adam Smith or Tom Paine would have found this completely unsurprising, since they thought of commerce as civilizing. Maybe they were naive, but the idea that an economy built on free exchange would somehow make people less respectful of each other makes no sense to me.

More important for me, the emphasis on personal relationships that's at the core of the idea of the embedded market is incredibly oppressive. I don't want to have to know people, or be part of the same clan, in order to be able to have good relations with them. One of the best things about the market is that in theory (and I know it's just in theory), it treats blood, family, neighborhood, religion, and ethnicity as irrelevant.

Thus endeth the sermon. Apologies.

Posted by: James Surowiecki on October 15, 2003 10:42 PM

I never much got past the discussion on embeddedness in Polanyi, so it was always my impression that he was advocating that we recognize embeddedness more in the modern economy than we recognize the move away from it. I'd say that as economic actors gain more market power they benefit exponentially from the general obscurity of the concept embeddedness because they can pass collusion and other forms of market manipulation off as the outcomes of an impersonal economy.

Posted by: Michael Carroll on October 15, 2003 10:44 PM

...which is to say we need to do a better job recognizing embeddedness in TODAYS economy! SD is way off in stating that the electronic economy is not conducive to embedded behavior - witness the California enegry crisis.

Posted by: Michael Carroll on October 15, 2003 10:55 PM

That's a great point about the way "competitive markets are always right" rhetoric can be used to disguise non-competitive outcomes. That's why I've always found the disdain most conservative economists have for antitrust confusing. If we know markets work best when they're genuinely competitive, shouldn't we be aggressive about making sure they're competitive? I know, the threat of competition is enough -- and I believe that it usually is -- but when it's not, what's the justification for doing nothing?

Posted by: James Surowiecki on October 15, 2003 11:08 PM

James Surowiecki: "...the more a culture depended on the market for its economic well-being, the more likely its members were to play the games in what Bowles and Gintis call a "prosocial" manner -- which means they displayed a concern with fairness and reciprocity, rather than pursuing naked self-interest. Their formulation is: more market integration, more prosocial behavior."

Certainly the market economy needn't destroy normative considerations and moral refinements. But doesn't this study really just prove that people who already have social expectation from playing the market game, adapt more readily to other new games? Fairness and reciprocity aren't demonstrated in traditional societies? There is a long history of explorers coming upon unknown tribes and being showered with gifts, in the most prosocial behavior imaginable. Are we to suppose they were already free-marketeers?


Prof. DeLong: "It was never the case that supply-and-demand played no role, and sociological expectations of what is due someone of a particular status and caste the complete role, in setting the prices at which transactions took place."

Given the long existence of the human world, isn't that unknowable?

Posted by: Lee A. on October 15, 2003 11:13 PM

For completeness at least, number four on that list ought to be "socially necessary average labour-time", shurely?

Posted by: dsquared on October 15, 2003 11:28 PM

Lee --

I'm not sure what it means to say that the people from more market-oriented cultures adapted to the games more readily. All of the participants played the games. It's just that the market-oriented participants were more likely to play them in a certain way. That way is not dictated by the way the games are set up. In fact, the interesting thing about the games is that prosocial behavior is not individually rational, so a game theorist would (I think) say that people who act in a prosocial manner -- people punishing greedy behavior in others, for instance, when they can reap no benefit from inflicting the punishment -- are playing the game wrong.

As for the tribes showering foreigners with gifts, I'd hesitate to say we know the motives for the showering. And I do know gifts in the pure sense have nothing to do with fairness. Arbitrariness is what makes a gift a gift. In any case I don't think the point of the study was to show that fairness and reciprocity are unknown in traditional societies. But I do think a strong case can be made that it's hard to come up with any non-market society that thought obligations owed to strangers were as important as obligations owed to one's familiars (familiars including co-religionists, kin, fellow clan members, etc.)

Posted by: James Surowiecki on October 15, 2003 11:42 PM

From Henrich, Boyd, Bowles, et. al., "In Search of Homo Economicus: Behavioral Experiments in 15 Small-Scale Societies" Amer. Econ. Rev. May 2001:

"In most of our field experiments subjects played anonymously, not knowing the identity of the person or persons with whom they were paired."

Question: how many of these participants, from "three foraging societies, six that practice slash-and-burn agriculture, four nomadic herding groups, and three sedentary, small-scale agriculturalist societies" (that's 16) are EVER involved regularly in transactions with anonymous people?

Posted by: Lee A. on October 16, 2003 12:37 AM

Also--I imagine that in almost every society ever, market and non-market: blood is much thicker than water. But since most non-market societies, if not all of them, were small nonliterate tribes, that question never arises, due to vicinal isolation.

Posted by: Lee A. on October 16, 2003 12:45 AM

Okay, this is a stretch, but what if it turns out that markets are really more pervasive in traditional societies than Polyani thinks, but it's just that because of the lack of cheap transportation and the smallness of cities, markets exist in a kind of "Edgeworthian" condition in which the limited number of participants allows significant individual control of some prices, rather than the "Marshallian" markets of large metropolises with cheap transportation, in which every buyer and seller takes prices as a given?

After all, suppose YOU were the only blacksmith in some village of 200. Going out of the village is time-consuming and impractical, and villagers can't mail-order to other blacksmith. Given the unlimited ability to price-discriminate, wouldn't you try to charge higher prices for the rich than the poor? To an outsider, that looks like embedded, just prices, since the effect of such policies is to make life easier for the poor at the expense of the wealthy.

That still doesn't explain why the mideival baker in the flour shortage doesn't raise prices, given his ability to do so, but as I said, it's a bit of a stretch.

Posted by: Julian Elson on October 16, 2003 02:07 AM

Back from work, a short shift, so...

James Surowiecki:

I have no nostalgia for pre-modern, nor for early modern hierarchical social structures. The first point I was trying to make with respect to Prof. Delong's post is that it is a conceptual/interpretive mistake to take the results of a very long secular development and read them back into much earlier stages of that development without taking account of what was possible and conceivable to those living under the dispensation of those times. The main point I was making is that it is only with the advent of industrial capitalism that markets could develop the penetrative power to render them central to socio-cultural reproduction and the distribution of wealth together with the long-period reproduction of economic means and resources- ( and this means that it is not markets alone that define their mode of efficacy). The third point I was making was that as this penetration develops, all other socio-cultural domains come to be increasingly subordinated to and functionalized by the market-based imperatives of economic reproduction-(this was the point of the famous Marx quote cited by Randolph Fritz).

Now I think it patently absurd to claim that market processes do not involve taking advantage of power differentials, since they evolved from such differentials. ( Clearly, the overwhelming advantage of even the crudest market-based capitalism over feudalism is that, whereas feudalism could only store expropriated surpluses, mercantile capitalism recycled such surpluses into further productive activity.) To be sure, market-based capitalism involves periodically reshuffling the deck, but this is not the same as playing from an unstacked deck. Furthermore, I think it is specious to claim that "pareto-optimal" market exchanges based upon the (perception of ) individual advantage mutually achieved are the same as as social exchanges based upon mutual recognition and shared obligations-( though no matter how advanced market processes may be, I think this is an unirradicable dimension of "human nature"). Thirdly, I think it is without question that market exchanges, transacted in the neutralized and symbolically reduced medium of money, are "morally and symbolically disemburdened", operating in an "autonomous" and "anonymous" fashion, and it is this that lends them their much-vaunted efficiency, in seeking out the most advantageous arrangements. (For the red-baiters amongst ye anonymous millions, though perhaps I exagerate in a humble, yet self-agrandizing way, given the actual impossibility of a state-directed centrally planned economy, the Soviet Union was actually an industrial barter economy.) To be sure, this is not to say that capitalism can function without some minimum of normative constraints. ( It was the burden of Durkheim's scholarly career to attempt to ground the normative power of contract, which he perceived to be at the core of emergent modern society, in some basis other than functional considerations; this is what led to his investigations, based on the cumbersome concept of "la conscience collective", of pre-modern anthropological formations.) But to attempt to re-moralize what has already long since been "de-moralized" can only be an ideological operation- (i.e. a normative misrepresentation used to conceal underlying power-relations). The difference between thievery and market-based exchange is more one of means and opportunity than one of motive. (Yes, read that last sentence carefully: it does not say that market operations are tantamount to thievery; it says that properly functioning markets constrain thievery.)

I do not think that modern "amoralism" is necessarily a bad thing. Insofar as it overcomes the repressive and violent effects of over-moralization, typical of pre-modern social formations, it is all to the good. Futhermore, insofar as it acknowledges the finitude and vulnerability of human creatures, it is a real advance of moral "progress". But "progess" is an inherently ambivalent phenomenon, not only because there are no sure and unambiguous measures and because there are trade-offs between incommensurable goods, but because there is an asymmetry between gains and losses- the losses, by definition, tend to fade into forgetfulness, while the gains tend to fade into the taken-for-granted, which becomes the impossible-to-conceive-otherwise. But the "core question" I asked is thus: given that socio-cultural reproduction and the securement of social integration, the coordination of social action and the binding of socially recognizable identities, is now predominantly determined by market distributions within the economic system, is there still a role for personal agency and social acknowledgement to be played in the formation of a world that leaves room for purposes and values other than economic reproduction and the accumulation of "wealth" based on private market driven investment decisions? "We" are now all embedded in the market economy rather than the market economy being "embedded" in us. Can we draw limits to this condition?

Posted by: john c. halasz on October 16, 2003 02:56 AM

Embedding has to cover being nasty as well as being nice. Without market institutions like police, courts and arbitration, maintaining my reputation for not being a sucker is up to me. So vendettas go along with gift exchanges as patterns of economically irrational behaviour. Adam Smith, in his Theory of Moral Sentiments, realised that instinctive “sympathy” would not cover all morality and brought in “resentment”, which his modern followers in evolutionary psychology put much higher on the bill. It’s well established that modern states are usually much less violent (in terms of average risk to members) than small-scale tribes, even counting war. These are substantial moral benefits of the market economy, linked to its relative kindness to strangers.

There’s a debate about the rationality of slavery. George Washington abandoned slavery on his estate because it didn’t pay. The Simon Legree type of skaveowner, who enjoyed domination over men and women, surely existed as well as cold-blooded calculators. Cyrus built his empire by dropping the paradigm smash-burn-loot-enslave model of warfare in the Middle East in favour of tax-and-rule; and from Assyrian and Roman art, the sadistic pleasure of humiliating captives was a big part of the point of war.

Posted by: James on October 16, 2003 03:03 AM

I'm not sure about medieval times, but merchants and bakers in revolutionary America were hesitant to raise prices during a shortage because if they did, they stood a good chance of having their stores ransacked. Here's a description of uprisings during the Revolutionary War:

"People who were trapped by inflation and shortage . . . tried to make sense of what was happening and to find a way to deal with it. Many of them . . . turned to ancient traditions claiming that in a good society, the public interest ought to come before private gain. If supplies were scarce, it was because 'hoarders' were holding them back. If prices were rising, it was the fault of 'speculators.' . . . Crowds, often made up of women, fought wartime inflation with the rituals of popular price-setting. News that a trader had a supply of tea or salt often earned him a visit from a crowd, who offered a 'just price' before taking what they wanted."

I'm pretty sure those Revolutionary War crowds were wrong about who was responsible for their plight, and I think we probably agree that looting is wrong. But let's face it: we all would have been better off if two years ago Californians had taken a page from their book and insisted on paying the gouging power companies only a just price. There really was a case of hoarders holding supply back and speculators making prices rise. (Actually, we would really have been better off if the regulators had done their job of stopping the abuse of market power.)

Posted by: James Surowiecki on October 16, 2003 03:04 AM

Embedding has to cover being nasty as well as being nice. Without market institutions like police, courts and arbitration, maintaining my reputation for not being a sucker is up to me. So vendettas go along with gift exchanges as patterns of economically irrational behaviour. Adam Smith, in his Theory of Moral Sentiments, realised that instinctive “sympathy” would not cover all morality and brought in “resentment”, which his modern followers in evolutionary psychology put much higher on the bill. It’s well established that modern states are usually much less violent (in terms of average risk to members) than small-scale tribes, even counting war. These are substantial moral benefits of the market economy, linked to its relative kindness to strangers.

There’s a debate about the rationality of slavery. George Washington abandoned slavery on his estate because it didn’t pay. The Simon Legree type of slaveowner, who enjoyed domination over men and women, surely existed as well as cold-blooded calculators. Cyrus built his empire by dropping the paradigm smash-burn-loot-enslave model of warfare in the Middle East in favour of tax-and-rule; and from Assyrian and Roman art, the sadistic pleasure of humiliating captives was a big part of the point of war.

Posted by: James on October 16, 2003 03:10 AM

I'm sorry, I forgot: can we conceive otherwise?

Posted by: john c. halasz on October 16, 2003 03:13 AM

Lee, I think it's two sedentary, small-scale societies, not three. (I'm looking at an earlier version of the paper.) As far as market interaction with outsiders, the researchers calculated an (admittedly subjective) 1-10 scale, on which six of the societies scored 7 or better. Although the descriptions are a bit skimpy, it sounds like these societies had a mix of labor and trade relations with strangers.

I think whether the deck is genuinely subject to reshuffling makes a huge difference to your idea of power differentials, and that is an empirical, not a theoretical, question to be asked about particular market societies. Certainly market-based power seems to me far less stable, and far more dependent on the agreement of large numbers of people, than any other form of economic power. But I'm in favor of doing much to make reshuffling more likely.

In any case, I don't understand what it is about market processes in particular that make them more dependent on taking advantage of "power differentials." More dependent than what? Feudalism? State socialism? It seems to me you're making a historically specific description of capitalism as it is but calling it a description of capitalism as it must be. But if power differentials are an ineradicable component of any modern industrial economy, then you have to show what's distinctive about capitalism's reliance on them.

I wasn't arguing that market exchanges are the same as social exchanges based on mutual recognition and shared obligations. I was arguing that market exchanges make social exchange based on shared obligation more likely in large societies made up of people unconnected by family, clan, etc.

Theft and trade do not exist on a continuum. They are qualitatively different from each other.

I'm not quite sure why you assume autonomy and anonymity imply amorality. The imaginary person who is protected by the Bill of Rights is autonomous and anonymous. "Mutual recognition" in a personal sense is not a condition of a just and fair society. And certainly respect for individual autonomy is.

The answer to your closing question is "Yes."

Posted by: James Surowiecki on October 16, 2003 03:50 AM

Sorry. Everything after the first graf was in response to you, John.

Posted by: James Surowiecki on October 16, 2003 03:52 AM

Good post, thanks! I'm thinking that competition between groups have fostered them to make its individual members trying to seek the most vital roles in the group. This seems especially the case for modern 1st world societies:

"Today people choose occupations in large part on the basis of the wages those occupations pay"

The group-take would be that we seek high pay, not because of the money, but for the social status that the high pay is serving as a proof of. This could then of course be, and is often, worked the other way around, in setting wages.

Accordingly, the economy would be deeply imbedded in large scale group processes, which BTW would give the church a much more central role than if it was a gang of crooks.

Posted by: Mats on October 16, 2003 04:26 AM

"It's just not right to say that the industrial capitalist economy's disregard for moral and normative considerations is cannibalizing other social domains. In fact, it's not even true that a capitalist economy disregards moral and normative considerations ("trade, don't steal" is the governing principle of any healthy market economy)."

James, you're being sneaky, with the 'healthy' point here. Any time that "steal, don't trade" is the governing principle of a market economy, you can just declare it unhealthy.

Please note as well that, by this standard, the current US economy is getting more unhealthy - at least at the top, where wealth is generally accrued through non-free exchange means. And by CEO's, who seem to make out rather better than bandits, no matter how their nominal employers fare.

Posted by: Barry on October 16, 2003 04:30 AM

Well, I am being a little sneaky, I guess. But not too much. If you had a society in which most people lived on what they stole from the few people who traded or from strangers, I'm not sure it'd really be meaningful to call its economy a market economy.

I absolutely that the U.S. economy has been getting more unhealthy at the top. I think C.E.O. pay is a huge problem for the system, because so many pay packages look more like legalized, insider-aided embezzlement than like market-determined compensation.

Posted by: James Surowiecki on October 16, 2003 05:06 AM

Parables, again?

One might consider Capra's "It's a Wonderful Life" and the difference between the Bailey Building and Loan and Potter's Bank. Fiction, of course, but a recognizably true-to-life fiction.

The Bailey B&L makes a lot of "Character" loans to taxi-drivers, bartenders, loose women, etc -- loans based not on marketable collateral but on the loan approver's assessment of the willingness of the lender to honor the obligation. Potter's bank, on the other hand, lends only on security, and OFFERS securities at fifty cents on the dollar (of worrisome paper assets); all purely market transactions.

The outcomes to society (Bedford Falls), lacking the B&L, are portrayed. But what happens if evil old Mr Potter had NOT been available to siphon off some anxious depositors during the bank run? What if the "Potter's Field" rental properties had not been available, and the only way to secure a roof overhead was build-to-own? Can we take the God's-eye-view of many possible Bedford Falls? Or is it "fraud" to consider transcendental values?

Posted by: Pouncer on October 16, 2003 06:16 AM

This is where the ideas of economics and society cross paths. I think the whole idea here, is one of "externalizing costs".

In a nutshell, businesses can get ahead, by "creating costs" and passing them along to places where the affect everybody/them less. Take for example, the idea of a factory farm dumping their refuse. It creates an enviromental hazzard, and they may pay a slap in the fingers fine, but chances are they'll save much more than it'll cost in the short-term. (That's important. Larger companies are more concerned with short-term rather than long-term. It's about increasing shareholder value and getting bonuses.)

It's the same thing with not paying what really is market value for labour. When a worker works for a company, in reality they are investing time and energy in that company, and should be repaid with a living. When through market forces, (A negative labour policy, like most of the West runs, for example) people are forced to take a job, it allows companies to pay below that "value". When that happens, it passes on added costs to society at large, in the forms of depression, crime, consumer debt, and so on.

The largest example of this, in the US, is the role of the HMO industry in employers trying to provide health care to their workers. The HMO industry is taking a larger and larger cut, which, from what I can tell, is killing small businesses.

The business of identifying and rectifying externalized costs, is going to be important in the future.

Posted by: Karmakin on October 16, 2003 07:06 AM

An excellent post and (to this non-economist's delight) admirably free from jargon. Makes me wish I was able to sign up for one of your courses (but I am 3000 miles away). The comments were also very interesting.

Thank you for making this sort of intelligent discussion available to all.

Posted by: John Stein on October 16, 2003 07:11 AM

An excellent post and (to this non-economist's delight) admirably free from jargon. Makes me wish I was able to sign up for one of your courses (but I am 3000 miles away). The comments were also very interesting.

Thank you for making this sort of intelligent discussion available to all.

Posted by: John Stein on October 16, 2003 07:14 AM

Marshal Sahlins (Stone Age Society, I think) defined an additional kind of reciprocity just to fulfill the formal possibilities: I always take, but I give nothing (i.e. violent plunder). This is a constant factor in political and military history, but inevitably also in economic history as plunderers decide to maximize their income by taking a standard tax instead of destructively plundering at will.

From this Frederick Lane (Venice in History) proceeded to define "protection" as a commodity. The dominant military group took a fee for protecting people from plunderers, while also plundering non-fee-payer and competitors of the fee-payers. This was developed further by Steensgaard (Steensgaard, Niels, “Violence and the Rise of Capitalism”, Review [of the Braudel Center], V:2, Fall 1981, pp. 247-73; Steensgaard, Niels, The Asian Trade Revolution of the Seventeenth Century, Chicago, 1973.)

Going further, new plunderers like the Mongols can be regarded as protection entrepreneurs making a bid to replace the protection experts already in place. In fact the Mongols ultimately made transcontinental travel much easier and cheaper.

This may be what Polanyi defines as redistribution. Lane's interpretation seems better to me. Libertarians should love it (the state rises from violence, etc.)

Posted by: Zizka on October 16, 2003 10:01 AM

Garrison Keihler has explicitly described small-town life as a community ruled by personal relationships, within which pure economic rationality was not dominant. Obviously this was never true except to a limited extent, and with Wallmart, mail-order, and the demise of family farms, Lake Wobegon is really passing out of existence.

In Taiwan in 1983 people talked about Taiwan's "ren-qing-wei" which basically means "human flavor". People were always giving special deals to one another, askling for favors, and doing favors. Haggling for price to a great extent involved convincing the seller that you might become a regular customer, that you know some of his friends, that you might be able to do him some good someday, that you really were a fine, decent person, etc. It wasn't mostly about the actual value of the product.

In Taiwan there was also something called the "one-price-store" where you couldn't haggle. From what I saw shopping there was a prestige act, showing that you were modern and classy. But older Chinese women would haggle even there, sometimes successfully, I think.

People in Taiwan also had a Chinese heierarchy in terms of ren-qing-wei. Mainlanders were old-fashioned, naive, and really too nice. Taiwan Chinese were next. In Hong Kong it was strictly business. No ren-qing-wei. But Singapore made Hong Kong look backward and was completely ruthless. This all squares with what people have told me. Americans I knew at that time compared Hong King with New York (strictly business, low prices) so Singapore must be something else entirely.

Nobody endorsed the Mainland regime, BTW, but they thought of the people there as simple and pure.

Posted by: Zizka on October 16, 2003 10:14 AM

"It's just not right to say that the industrial capitalist economy's disregard for moral and normative considerations is cannibalizing other social domains."

Well, the history of the social security program - created because industrialism was destroying the old way of organizing multi-generational families; parents didn't live with their children anymore - is an example of this.

Posted by: Jason McCullough on October 16, 2003 12:31 PM

Went to bed. Just got up and made my coffee. I work the night shift in Eastern time.

James Surowiecki:

In answer to some of your 3:35 AM post:

1) Industrial capitalism, though a historically evolving beast, does involve necessarily the formation of large concentrations of market power. And the need to correspondingly capture larger market shares has historically led to large-scale social dislocations operating through markets. I did not get into the rise of the modern state, though my initial post was implicitly about the functional differentiation of state and economy as the two predominant features of social modernity in their co-evolving historical emergence and formation. But surely the rise of "big government" with its increasing differentiation of functions was a response to the rise of "big business", as a way of compensating for and dealing with its "externalizing of costs" (thank you, Karmakin). Much of what I would guess you would regard as equitable or tolerable in the distributions and effects of current market functionings is surely due to such constraints on the operation of pure market "forces". (Though fasten your seat-belts...) I also did not get into the third predominant feature of modernity: the increasing degree of structural-functional differentiation in society itself. This is an ambivalent phenomenon as it involves an increasing pluralism of spheres of values and interests and a more polycentric distribution of power which renders problems of coordination more complex and difficult. It seems to me that one of the reasons that opposition to the rise to power of the corporate right over the last 30 years in the U.S.A. has not been more effective is this pluralism of values and interests, which causes a lack of common identifications and of the identification of common ground, even as the anxieties this generates gives rise to the reactionary formation of various kinds of self-enclosed fundamentalisms, whereas our constituional/political system stems from much earlier agrarian times, when, though far from the Jeffersonian yeoman beau ideal, such a broad commonality of ways of life obtained and could be presupposed.

2)I think your question about "anonymous" and "autonomous" is partly based on a slight misreading, as when I used those words, they applied to systems and not to persons. The "amorality" of market processes, the disemburdenment of normative considerations beyond the bare minimum required to ensure their functional efficacy, is simply stating a fact about their nature, which is also a prime source of their efficiency. But historically, this feature was a prime force in dissolving traditional moralities and world-views, as well as customs and conventions. On the other hand, amorality- (not to be confused with immorality or Nietzchean "immoralism")-, as a moment of genuine moral consciousness, I take to be a valuable achievement and feature of social modernity. Among other things, it is what allows for the maintenance of mutual recognition across differences in values and interests.

I do come at these issues from a definite presupposition about "human nature", however- call it an aristotelean/hegelian view (no capitals). Not only are human beings and their freedom thoroughly finite, but human beings are unirradicably social in nature, they can thrive only in community with others and are fundamentally dependent for their existence as persons on the recognition of others. (It is from this point that the point of Mats' post takes off.) I take, therefore, the maintenance and cultivation of processes of mutual recognition to be a fundamental human and social good. I also do not put much stock in moral theories that postulate "imaginary individuals" or, as with Kant, a purely intellectualized respect for others; an acknowledgement of others in their concrete and fleshly vulnerability is at the root of moral consciousness. As to which arrangements render moral recognitions under de-moralized conditions more probable, this is an entirely consequentialist consideration. While the functional requirements for the coordination of productive activities is not a morally negligible consideration, since otherwise there is precious little of the material components of human well-being to be distributed, this is insufficient guidance for the question and the pure operations of markets alone are entirely indifferent to it. To portray as necessity the workings of human freedom is bad faith; one does not have to buy into hyperbolic Sartrean metaphysical postulates about human freedom to recognize this. But equally to portray the workings of functional necessities as the prime realm of human freedom is also bad faith. The "freedom" of markets is what is required to achieve their functional optimum. There are other modes of the disposition of human freedom and other realms of purposive activity to which markets do not of necessity respond.

3)I approach these sorts of issues from, broadly speaking, an European-style social democratic point of view. I do not think it is possible, nor desirable to abolish market functionings. To me, the interesting and fruitful questions are those of boundaries: it is a matter of where markets should be given free reign, where their processes and outcomes should be modified or regulated, and where other modes of social regulation and provision are more apt. But I do not believe that the self-formation and development of societies, with their myriad communities and individuals, can nor should be entirely given over and abdicated to the functioning of market processes. Most especially it is a matter of whether human beings can maintain some capacity collectively to steer the future course of their social development based on their free disposition and rational deliberation, given, of course, that the ontological status of the future, as we all know, is unknowable and nonexistent. In particular, I don't think consigning all decisions about future investment allocations to private capital markets is conducive to that end. I have no doubt that it would get us more technological gadgets and more elaborate medical treatments, but I am doubtful that it would amount to much net gain in the human social good.

We moderns are all the unwitting product of myriad futures past. We can know and, all too often, care to know, little of this. But surely the point of our historical reflections is to in-form our deliberations with respect to our possibilities and responsibilities before the irremissibly on-rushing future. It is on issues along these lines that, I think, individuals who are neither excessively like-minded, nor excessively self-interested can most fruitfully propose and debate.

Posted by: john c. halasz on October 16, 2003 02:07 PM

John --

I imagined that part of our disagreement stems from the conflict between an Aristotelian conception and a . . . well, I don't know what my conception is -- Condorcetian, probably.

I also think the idea of "big business" seems increasingly less relevant, and as for market power, I just don't see very many companies with it at all. Now, you could talk about market power in a structural sense, in which it was exercised not by any one company but by "big business" in general, but then I don't know what makes it market power or even power at all.

In any case, I don't disagree with much from the second half of (2) down to the end. In none of my posts was I arguing that markets should control all realms of "purposive activity" -- our discussion began, I think, when suggested that the fear that it might was misplaced. Nor do I think the development of societies needs to be given over entirely to markets. Just to make the point clear: I think of markets as an instrument by which society accomplishes certain ends: the coordination of production,the fostering of innovation, and the allocation of capital (which is made more accurate because markets are, despite all their flaws, good aggregators of inforamation). I also think of markets as contributing to, not eroding, social bonds, because well-functioning markets encourage trade with strangers, and require some degree of trust in order to work smoothly.

I'm intrigued by the possibility of making collective decisions about some future invesmtent allocations. But I suppose my concerns are the obvious ones: allocation based on politics, not the common good; entrenchment of projects long after their past-due date is passed (I don't think the market economy is better than governments at picking winners, they're just a lot better at killing losers), etc.

Posted by: James Surowiecki on October 16, 2003 03:45 PM

Its a shame though that your fruitful economic relationship with the 12 year old neighbor is very illegal. Even if there is a "morally correct" wage, how would one codify it without excluding such situations as these. In reality these kind of personalized "gift-exchanges" are illegal in current employment law. Even selling your car to a friends for less than its worth brings up the problem of paying sales tax on its market value. Clearly, regulation of the labor market has no place in the 'embedded' economy any more than in the market economy.

Posted by: nader on October 16, 2003 04:20 PM

Its a shame though that your fruitful economic relationship with the 12 year old neighbor is very illegal. Even if there is a "morally correct" wage, how would one codify it without excluding such situations as these. In reality these kind of personalized "gift-exchanges" are illegal in current employment law. Even selling your car to a friends for less than its worth brings up the problem of paying sales tax on its market value. Clearly, regulation of the labor market has no place in the 'embedded' economy any more than in the market economy.

Posted by: nader on October 16, 2003 04:23 PM

Neither Aristotle, Kant, nor Hegel thought that human beings are finite, only that their rationality is.

Posted by: Lee A. on October 16, 2003 04:55 PM

I did not think James Surowieki is a market fanatic;I figured him as an American type liberal.
But market fundamentalism has been a widespread ideology for sometime now and has achieved a deep popular penetration,if only to inculcate in many a sense of resignation. Arguments that are skeptical of or contrary to the universal reign of markets are too little heard. As for the decline of "big business", yes, I think the mid-twentieth century style industrial behemoths are becoming a thing of the past, but just because the mode of organization of business is changing that does not mean large corporations do not retain enormous power in their far-flung organization. To be sure, we are now facing the prospect of world-wide deflation and the market pricing power of corporations is thereby weakened, but that of labor is all the weaker and corporations have much more extensive means of adapting. And I don't think that the strategic and ideological power of corporations and their accolytes is at all trivial. Just think of the extent to which government revenues and public spending has been sqeezed world-wide over the last thirty years, even as concessions, supports and subsidies to corporations proceed apace. (I am dimly hoping the our current incompetent-in-chief is the crisis point in the traditional sense of the word, the maximal point at which the fever breaks.) At any rate, it has been the considerable burden of free market ideology to de-legitimate not just government policy action but the public sphere itself, even as that public sphere is invested with corporate control and the commercialized production of culture as a commodity.

As for politics itself, yes, the limits and defaults of collective action, public policy and regulation and bureaucratic outputs are well-worn.
But is there not room for constructive proposals to remedy these faults, especially since the pendulum has swung so far in the opposite direction as to severely constrain the steering capacities of governments? Furthermore, there are inherent limits to centralized representative government and government actions can be oppressive, reifying, obstructive or wasteful. But politics does not just concern periodic plebescitary elections and the interactions of office-holders, but also concerns a wide spectrum of activities across the entire public sphere. (One could e.g. organize a protest demonstration against a corporate polluter.) My political instincts are to look for proposals that would generate more decentralized and participatory public institutions. And as for markets and corporations being the prime source of innovation, I shudder at the thought of the initiation and outcome of research being the exclusive "intellectual property" of private corporations. Just think of the deals that are already being struck between universities and private corporations. This strikes me as being symptomatic of basic research being a currently underprovided public good. But then so is education itself.

Lee A.:

Yes, that is why I did not use capital letters. And I am not even sure that Hegel even acknowledged the finitude of human reason; with him, it is always a question of how you read him, since he can not really be read as a whole. The emphasis on human finitude over against the classical metaphysical ideal of reason began with Kierkegaard (or Dostoyevsky, that generation) and has been well assimilated by most by now. My personal favorites in the human finitude sweepstakes are Wittgenstein and Levinas. But I do not think a full appreciation of the fact of human finitude requires an abandonment of rationality, nor its restriction to the cognitive function of the specialized sciences.


Posted by: john c. halasz on October 16, 2003 07:51 PM

Dear john c. halasz,

We are way off the Professor's original subject, which I think was about how economics might begin to think accurately about price transactions which are not entirely determined by supply and demand, and whether Polanyi's "embedded economy" could be an analytic tool to look at this.

Be that as it may, please take heart: I do not believe that "market fundamentalism" is as deeply rooted among the rank-and-file hoi polloi as you suppose: all of my blue-collar friends understand that it's a ruse. And at the top end, surely no real economist believes in it. In the academy we hear a lot about markets because supply-and-demand is one of the firmest tools we have to explore in this area, and the ideal is tractable mathematics and predictive success. Certainly there are no true scientists in any field, nor any accomplished men of god, who believe in "market fundamentalism". It appears to be mostly a poison in the middlebrows who've swallowed the op-ed pages of the Wall Street Journal, or people hoping to be like them and looking for a little shop-talk.

Society breathes in and breathes out in multi-decadal cycles, and now we've been in thirty years of conservative ascendance which has promulgated "market fundamentalism" to shield windfall gains by the corporate plutocracy. It's been successful politically, not because most people believe it, but because most people are along for the ride, always. The left has only itself to blame because it has temporarily lost its own rigor and voice, perhaps indeed yes in a wash of self-absorption. But the jig is nearly up, due to social, medical, fiscal, environmental, maybe even foreign policy reasons. The extraordinary shrillness of the rightwing pundits is a clue to the coming crackup--it's the same etiology that was seen in the left, thirty years before. They've started falling all over each other. "Market fundamentalism" is near the end of its reign.

I sincerely hope you will find a way to put your well-considered arguments to practical use, and so accelerate its demise!

P.S. I beg to differ on Wittgenstein too. He was virtually a mystic.

Posted by: Lee A. on October 16, 2003 09:23 PM

Lee A.:

Thank you for your consideration.

I wish I could share your faith in less-than-cosmological periodicity. I am much more dimly hopeful: I see through a darker glass. Perhaps one should tote up the damages already done and the considerable "problems" that remain as a legacy.

Was Professor Delong trying to make a point about non-market modes of valuation? I completely missed this point. I have been trying to make this point about so-called labor markets for the longest time. Perhaps it was the recourse to the example of baby-sitters and the comfortable mode of existence.

You have blue-collar friends? I have no such friends, for I am blue-collar myself, fairly dark blue. Friends are chosen. Perhaps you do not realize the mixture of adventitious anger, resentment, confusion, desperate belief, and sheer babbling that is out there in the labor markets. It strains one's sense of good will.

Supply and demand-i.e. marginal analysis? I personally find economics far more interesting as a structural "science". For example, why is there a given and discontinuous distribution of business models for, e.g., retail sales establishments rather than a mathematically continuous meeting of supply and demand? Tautologies such as revealed preference are hardly an answer.

Wittgenstein a mystic? "Tractatus" or "Philosophical Investigations"? Throughout he was a Krausian. "Das Mystische" was explicitly identified with the ethical. "Woran man nicht sprechen kann, muss man schweigen": from a certain modernistic, if somewhat positivistic, standpoint, one can see the point- to say exactly what one can say and no more than one can say, to state the facts and only the facts, amounts to a form of authenticity. At any rate, a thinker who takes the question of the limits of reason with full seriousness, must seem a mystic- for what is there beyond the limits of reason? One should distinguish such rational "mysticism" from its irrationalistic variants. To offer my thoroughly heretical view on the matter, I think that the later Wittgenstein was fundamentally, if unwittingly, influenced by Gramsci via Sraffa. An Austrian commentator labeled his later philosophy "praxiological foundationalism". The "foundationalism" I could well do without, but "praxiological" is a good coinage, so as to distinguish from pragmatism. Unfortunately, I recently found out that the coinage goes back to von Mises. That Wittgenstein was averse to the ideal of progress can not be denied, but, in the light of the evidence, can one blame him?

Posted by: john c. halasz on October 17, 2003 02:53 AM

john,

Toting up the damages specifically is always a good start for real change, whether personal or political.

Anger. confusion, desperation are the signs that change is sought, and needed.

By "supply and demand", I meant the price mechanism in general...

If you are going to veer off into structural discontinuities in economics, vet the institutionalists, e.g. from Marx through Williamson, and go beyond them to finally bring us all a good general theory of the power/price relations in single-step hierarchies, open and closed, whether they are firms, families, or foreign relations. But, for heaven's sake, do not suppose that this theory will demolish "market fundamentalism", which is a public-relations canard, to be dealt with by other means, in another realm. Pick one or the other, and stay on point.

Beyond the limits of reason, there is change of being.

Posted by: Lee A. on October 17, 2003 08:04 AM

Sorry to get the last word in as this thread heads into entombment, but W. makes the similar point. I could not find the quotes on a brief internet search, but there is the one about it not being a matter of a change in intellect but rather of a change in will and the other one about in the darkness of these times, a medicine proffered by an individual can be of little use, for what is needed is a change in life. Off to work now.

Posted by: john c. halasz on October 17, 2003 03:34 PM

After entombment, there is change of being.

Posted by: Lee A. on October 18, 2003 01:09 PM
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