Sat Oct 2nd, 2010 at 12:36:56 AM EST
Right wingers and liberal Democrats both love to say that I advocate for some kind of nebulous utopian dream.
from The Progressive Dilemma
by Nick Egnatz in the Diary What to do now?
by tahoebasha3 at Docudharma
Polanyi, the history of economic thought and the economists
The terms Utopia and utopian are often used as terms of disparagement, and not without reason. Massive social experiments based excessively on theory or reason have wreaked social havoc from The Terror during the French Revolution to the Maoist Great Leap Forward in the 1960s and 1970s. Yet one of the most dramatic Utopian experiments was never so labeled. The fact is that both Classical Economics and Neo-Classical Economics were/are utopian systems. In this sense Adam Smith predates Classical Economics. He was more practical and descriptive. Bentham, James Mill and Ricardo were prescriptive and axiomatic. And the economic system they created was, in fact, utopian, but of the dystopian flavor for all but the very wealthy. The 20th Century extension of Classical Economics -- Neo-Classical Economics -- retains all of the original utopian features despite the problems it has been shown to exhibit. Between them, Classical and Neo-Classical Economics as applied in the UK and the USA constitute the longest running Utopian experiment of which I know. We need to understand this history, which has been actively shunned, in order to understand where we are and where we are headed, unless we can change direction.
Update [2010-10-2 9:36:11 by ARGeezer]: Spelling, syntax, added link and edits for clarity.
In fairness the Classical Economists created this utopian system at a time when the understanding of markets and economics was rudimentary and when there were not national markets in the sense we understand today. And they were reacting to the remnants of the old hereditary feudal system of social organization and during a period of social crisis involving a highly dysfunctional rural labor system that had been effectively wrecked by the paternalistic Speenhamland System of aid to the poor. Speenhamland had been created by the squire-archy, who had to pay for poor relief, as a better way for them to deal with increasing social dislocation due to rural unemployment in the 1790s, during a time of war with Revolutionary France, and it effectively succeeded the Elizabethan Poor Laws. But its method of implementation was disastrous to all who fell under its purview and it prevented the emergence of a true labor market just when the English Industrial Revolution needed such a market badly while destroying all incentive for self improvement by the poor.
The founders of Classical Economics saw the problems and advocated the creation of a market based system for land and labor. They succeeded in pushing through a repeal of all assistance to the poor so as to force the creation of a labor market in the early 1830s. In time this led to great wealth, but the immediate cost to a generation of the working class was enormous. Out of their desire to liberate the operations of economic activity from the constraints of feudal traditions they posited a self regulating, autonomous system of economics, analyzed how that system should work, and passed legislation to enable the creation of a set of markets. The whole process was one giant social experiment by wealthy Liberals and their business allies on the working class -- the very model of a Utopian social experiment in a class based society.
In every society that had existed to that time productive effort, or work, was embedded in the structure of the society. People worked for a myriad of reasons, none of which were purely rational or economic. In some societies a the fruits of man's effort went to his sister's families, not his own. All of these different societies had evolved organically. The Egyptians had built the Pyramids without even a concept of money, let alone a labor market.
In order for the self regulating market based system created by the Classical Economists to work there had to be functioning markets for labor, land and capital. The City of London had evolved ways of dealing with capital and there were pressures to remove restrictions on the sale and use of land, but labor was, by brutal abandonment, turned into a market by laws passed in Parliament. Any remaining poor relief was deliberately made as repugnant as possible. If one wished to feed their family, one worked on any terms available. And there was a surplus of labor. "The market will provide!"
The full system of Classical Economics treated all elements of production as commodities and required functioning markets for the commodities of land, labor and capital. But these were fictitious commodities -- not really commodities in the sense that corn, coal and sugar were commodities. Labor was provided by human beings who came, preferably, from families, were required to be minimally socialized and were also subjects of the crown and members of the Church of England or one of the dissenting churches. In addition to their labor they they were seen as possessing souls. Land extended to all aspects of the physical environment, which could not be degraded with complete impunity. Money, or capital, is a relationship between people in the context of a society and not just a commodity. Self regulation of money was thought to come from the magic of the Gold Standard, despite the fact that the money supply, (neglecting the evil magic of fractional reserve banking), was thus dependent on the rate with which new gold mines were discovered and despite the economic havoc that particular fact wreaked on societies which might need different rates of increase in money than that accidentally provided by the mining industry. It is all of these non-economic aspects that cause land, labor and money to be fictitious commodities.
The Classical Economists seem to have fooled themselves into thinking that the sphere of economic activity could be made into an autonomous area operating according to discovered natural laws, like those that Newton had discovered for the physical world. But in the process they did violence to the social system from which that autonomous economy had been ripped. The "laws of economics" which they thought they had discovered did not and were not supposed to take into consideration human and environmental needs. Unchecked, the operations of the autonomous laws of economics on land and labor could destroy the society and the environment -- could and tended to do so. Spontaneous efforts to protect society and the environment arose, but they were de-legitimated by economic theory and that hampered their effectiveness.
For two centuries economists have claimed primacy for their "laws of economics". It is true that the system they described has been associated with the creation of a vast increase in material wealth. But the need for protective measures to limit the scope of economic autonomy has remained and there has existed a continual tension between economists and their business supporters who claim primacy for what they see as "the laws of economics" and those who want to insure the survival of the society and the environment. In the last thirty years the pendulum has swung strongly to the side of the proponents of economic autonomy with the resulting social dysfunction that we see all about. There is a very good argument to be made that such successes as economics had enjoyed has been as much the result of those who would limit it as of those who would make it autonomous. And those who would make it autonomous, and who still maintain that it must be autonomous, remain Utopians.
The view presented above is largely derived from Karl Polanyi's The Great Transformation, 1944, which I am in the process of re-reading, though the formulation is my own. They also draw in part from Capital as Power by Nitzan and Bichler. Despite, or perhaps because of, its incisive and insightful nature Polanyi's The Great Transformation -- a major work of economic and social history and of the history of economic thought -- is largely unknown today to most economists. Economic history can be inconvenient to economic theory. Perhaps that is one of the reasons the teaching of the history of economic thought has fallen into such decline in US academia. I have seen economists complain that economic historians hate economists. I would suspect that what the economic historians hate is that contemporary economists largely ignore economic history and the history of economic thought, of which a large number are largely ignorant.