Home > Uncategorized > Economics and the new history of capitalism

Economics and the new history of capitalism

from David Ruccio

As I tell my students, nothing gets a mainstream economist frothing at the mouth quite like mentioning Karl Polanyi.

Or at least it used to, when mainstream economists actually knew who Polanyi was and grasped—however dismissively—what he wrote about the history of capitalism.

To his credit, Eric Hilt (pdf) appears to know something about the author of The Great Transformation and how his work influenced the new history of capitalism. And his review of ten recent books, including Edward Baptist’s The Half Has Never Been Told and Sven Beckert’s Empire of Cotton: A Global Historyis not as dismissive as those of other mainstream economists, such as Alan L. Olmstead.

Much of the research of economic historians focuses on questions originating in economic theory, which tend to be quite narrow. In contrast, these book present expansive narratives and explore questions that may not be amenable to the analytical tools of economists. The authors’ critical perspectives also distinguish their work from that of economic historians and make it relevant to the concerns of many popular readers. The historians of capitalism rightly remind us that economic growth and development can have human costs not captured in average incomes; that our economic history includes no small measure of cruelty, coercion, and expropriation, rather than free exchanges occurring in the context of secure property rights; and that the economic system we have today is not a natural condition, but the outcome of policy choices that could have been made differently.

Hilt is, I think, correct: the new history of capitalism does represent a reminder to—and thus an indictment of—contemporary mainstream economics, precisely because it includes an analysis of the “cruelty, coercion, and expropriation” of the emergence and development of capitalism and the idea that contemporary capitalism is “not a natural condition.” 

Generations of economics students won’t have seen or heard either of those propositions. Indeed, what little history has been presented to them emphasizes exactly the opposite: that capitalism emerged both smoothly—without conflict, through voluntary decisions and the spread of markets—and naturally—in a manner that corresponds to human nature.

But then, as if he can’t help himself, Hilt chooses the side of mainstream economists against the new historians of capitalism—because they haven’t demonstrated the appropriate respect. On Hilt’s reading, Baptist, Beckert, and the others haven’t respected capitalism, either historically (because of the role of slavery and its coercive institutions in the history of capitalism) or today (especially after the crash of 2007-08 and the misery it has visited on tens of millions of ordinary citizens, in the United States and around the world). And they don’t respect the “rigor” and “sophisticated analyses” of mainstream economic history, which they “have failed to engage.”

The influence of the recent crisis and the Great Recession in these works. . .creates something of a pitfall for their analysis. Just as poor historical analogies can distort our understanding of the present, modern analogies can produce fallacious or unsound is misapplied. Although financial development often leads to volatility, and although venality and corruption among financiers seems to be as close to a historical constant as one can find, not all finance is harmful. The financial sector performs of vitally important function. . .

Ignoring the economic history literature has led historians of capitalism to make assertions that have been refuted conclusively and to get important elements of their arguments wrong.

In the end, what Hilt can’t seem to abide in the new history of capitalism are two things: first, that historically violence played an important role in the emergence and development of capitalism—rather than, as mainstream economists would have it, that the brutal institutions of slavery and government imposition of market forces are fundamentally incompatible with capitalism; and second, that methodologically the new historians fail to articulate and test “counterfactual” statements.

The fact is, mainstream economists always seek to minimize the role of violence and force in the emergence and development of capitalism and to resort to problematic causal inferences in an attempt to isolate the effects of economic, cultural, political and natural forces within a complex, evolving social totality.

So, no, capitalism didn’t need to resort to “cruelty, coercion, and expropriation” over the course of its history. But it did—and those conditions that are often hidden underneath the “very Eden of the innate rights of man” have stamped both its origins and the way it continues to operate today.

Or, as Polanyi (pdf) himself wrote,

the market has been the outcome of a conscious and often violent intervention on the part of government which imposed the market organization on society for noneconomic ends.

  1. Alan
    September 13, 2017 at 3:50 pm

    Polanyi has a rather different standing in anthoplogy. He’s a central figure in economic anthropology. See for example this collection of essays: Market and Society: The Great Transformation Today. Nearly all the contributors are anthropologsists. Anthopologists also read Marx, Thorstein Veblen and are even rediscovering Smith (the latter when they realize that Smith is not alive and well and living in the Economics Department at the University of Chicago, as Stigler once claimed, but a victim of kidnap whose ideas have been subject to “cruelty, coercion, and expropriation”). See for example Sahlins.

  2. September 13, 2017 at 4:48 pm

    I’m reminded of the choices facing the average citizen in the mid-to-late 1990’s about the digital-Internet wave of innovation: if you wanted a job you had to climb on board, learn the new skills…was it really a choice when it was presented in such stark terms…and the reality underneath this framing was pretty much true…of course, the ramifications of what was being forced upon everyone are still amplifying: hacking is here, dismissed by the military industrial complexes of the world as just another chapter in spy versus spy…until the 2016 election…what would be covered clearly under the existing criminal code as “breaking and entering” and in its more expansive examples as violations of a nation’s physical sovereignty – formerly considered a cause for war – are now explained away under very flimsy rationales (I’m thinking of China’s extensive hacking of US governmental institutions and private corporate domains…just to balance the public discussion out a bit…)

  3. charlie
    September 13, 2017 at 6:17 pm

    Interesting: My BS is in Chemistry, Stanford ’62, I read Polanyi only it was Mihaly. Who impressed me with his wide range of interest and accomplishment. I do remember that he wrote about economics and at the time disposed me to dys-Samuelson the economics text at Stanford at the time.

  4. Dave
    September 14, 2017 at 3:08 am

    I know I don’t recollect us getting to here by only a series of Pareto Efficient moves, having started from an initial set of Just distributions…

  5. September 18, 2017 at 8:44 am

    Like many of the actions and networks that influence our lives, capitalism is quite simple in form, if not in consequences. Capitalism is the application of an ancient objective of merchants – invest money to make money – to finance production. This can be any sort of production. Of physical products, but also services, art, recreation, entertainment, war, etc. Capitalist production depends on the exploitation of physical resources, but also wage labor which also provides income for the consumption of the goods produced by capitalist enterprises. Production and consumption are linked by markets that grow to decide all economic activities. Markets enable competition among producers, but also create tendencies toward concentration and control to reduce/manage uncertainty. This includes not just uncertainty because of multiple producers, but also uncertainty because of government regulation and the operation of laws. Market instabilities also provide the basis of a speculative form of capitalism (wagering on price and production values), which may not be productive in a societal welfare sense but is nonetheless based on the relationships central to the operation of a capitalist economy. The consequences of this relatively simply economy is wide-ranging, however. From economic inequality, environmental degradation, government corruption, wars, moral breakdown, unending pursuit of growth and greater wealth, all the way to societal collapse. Capitalist humans are, it seems committing suicide with a rusty razor blade.

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