My Most Incorrect Belief
By Arnold Kling
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.