economists-from-hungary

"In 1977 my wife and I and our two young children spent the first of many summers in the comfortable, rambling house of Nicky and Clarissa Kaldor at 2 Adams Road. Nicky, too, had worked with Keynes as a young man, and he loved discussing (or rather expounding) economics. He was then obsessed by the need to save the world from the evils of 'monetarism', and would develop this theme for many hours at a stretch. I would ask questions, which he probably attributed to ignorance or incompetence or both, but which gave him fresh opportunities to lambast Milton Friedman and other assorted 'neo-classical' economists and free-trader. Nicky suffered from narcolepsy, and would often fall asleep in full flow, only to resume ten or fifteen minutes later at exactly the point he had left off. He was a wonderful and generous teacher and friend, and I learnt a great deal from these tutorials, though I had a strong intuition that he was fighting a losing battle against the forces of darkness."

"Though he died in 1946, Keynes still dominated economics at Cambridge in the mid-1960s. It wasn't just that all the leading figures among the faculty, Richard Kahn, Joan Robinson, Brian Reddaway, David Champernowne, Nicholas Kaldor, and James Meade, had been his pupils and/or collaborators. It was the tone of the place. The study of economics, theoretical or empirical, was driven by the desire to improve the conduct of economic policy. This did not mean that pure theory was neglected. Indeed, in those years Robinson was fighting a stirring battle in the realms of high theory with Paul Samuelson and Robert Solow from the Massachusetts Institute of Technology. Nor was Cambridge innocent of the cutting edge of econometric technique. Richard Stone, who, following Keynes's suggestions, had created the first modern national income accounts, was still director of the Department of Applied Economics where much of modern econometrics was pioneered."

"The [seminar in economic theory conducted by Hayek at the L.S.E. in the 1930s] was attended, it came to seem, by all of the economists of my generation — Nicky [Kaldor], Thomas Balogh, L. K. Jah, Paul Rosenstein-Rodan, the list could be indefinitely extended. The urge to participate (and correct Hayek) was ruthlessly competitive."

"The national predicament has obsessed public debate for five years now; all political discussion has revolved on it. In that time, innumerable unrelated or contradictory explanations for the crisis have been advanced by British economists. The most influential has doubtless been Kaldor’s, which attributes Britain’s post-war economic decline to a shortage of cheap labour from the primary sector, due to the uniquely rationalized English agriculture of the last century."

"Inflation and Employment in capitalist countries, in my own view, the change is the other way around: the constraints on the pressure of demand tend to be excessive, with the result that unemployment is much greater than can be justified by the needs of resource-allocation, and the rate of economic growth is appreciably less than it could be. The main reason for this is that the distribution of power and, ultimately, the distribution of incomes, changes in favor of labor the faster the economy grows and the nearer it is to full employment, and over a longer period it changes in favor of capital the greater the volume of unemployment. This is the real reason why the continuance of Keynesian policies after the war led to a recrudescence of long-discredited ideas that go by the name of “monetarism.” The main attraction of monetarism was not its intellectual simplicity— inflation is a matter of the money supply, period— but that it elevated the fear of inflation to the unique position which could not be justified by the experience of numerous countries who habitually suffer from it."

"Schumpeter’s work, his dynamic view of the entrepreneur and creative destruction has had a great impact on me. He indeed wrote a book, Capitalism, Socialism and Democracy, which intended to give a complex analysis of the two systems. But these two books, and a few others (e.g., some of Mises’s and Hayek’s works) are rather exceptional. A typical American textbook on economic systems is not written with the same ambition about capitalism with which I wrote about socialism. It doesn’t give you a general model of capitalism, including the characterization of the political, ideological, and social spheres."

"Post-war prosperity also overshadowed the central problems with which Polanyi grappled in the 1930s and 1940s. Polanyi accepted that a market society could indeed produce a great deal of material prosperity, but he was concerned that it could only do so by turning people into puppets and playthings of mindless market forces, and that people did not take well to this new role. The goal, for Polanyi, was to achieve the prosperity that a market economy generates, without suffering the risks of poverty, creative destruction, and community erosion implied by the operation of market forces.Crucially, Polanyi warned that if the modern bourgeois order failed at this task, authoritarian and totalitarian political movements would benefit. During the post-war period, the fair-weather argument that market-driven prosperity justifies any collateral social pain was taken as a given; it also came to define the consensus view among the moneyed class and its ideological backers."

"In effect, by far the greater part of trade flowed in such dispositional channels, while a much smaller part continued to proceed on transactional lines. Numerous devices ensured that no merging of the two should ensue. Both equivalencies, which made gainless transactions possible, and rules of law, which organized riskless dispositions into a trading system, were a result of the dominance of redistributive forms of integration. But these did not operate in the ways of tyrannical administrative bureaucracy, as assumed by historians in the past. The absence, or at least the very subordinate role, of markets did not imply ponderous administrative methods tightly held in the hands of a central bureaucracy. On the contrary, gainless transactions and regulated dispositions, as legitimized by law, opened up, as we have seen, a sphere of personal freedom formerly unknown in the economic life of man."

"If it seems that we have unduly stressed "acquisition of goods from a distance" as the crucial factor in trade, it was done, inter alia, in order to work out more clearly the determinative role played by the acquisitive or import interest in the history of trade. It involves, as we saw, no less than the alternatives of peaceful versus forcible methods of satisfying that interest, alternatives that may affect the total structure of the state as well as its modes of acting in history."

"Anthropologically, money should be defined as a semantic system, broadly similar to language; writing, or weights and measures. These systems differ mainly in the purposes served and the signs employed. Language and writing serve the purpose of the communication of ideas, weights and measures that of quantitative physical relationship. As to signs, language uses oral sounds; writing employs ideograms or visual characters; weights and measures, on the other hand, use physical objects as the basis of symbols. Money resembles, but also differs from, each of these. It serves several ends, which are traditionally described as means of payment; standard of value or money of account; store of wealth; and medium of exchange."

"The standard use of money is vital to the staple finance that accompanies large-scale storage economies. No assessment and collection of taxes, no budgeting and balancing of manorial households, no rational accountancy comprising a variety of goods is possible without a standard. Since it is not the number of things but their values that are here subjected to arithmetic, this operation requires the setting of rates relating the various staples to one another. Such figures, representing rates, are in effect available in most archaic societies. Whether by virtue of custom, statute, or proclamation, fixed equivalents designate the rate at which the necessities of life can be mutually substituted, one for another. It is only when prices develop in markets (i.e., relatively late) that money as a standard can be taken for granted, as it is today."

"The market institution has its origin in two different sets of developments: the one external to the community, the other internal. The external is intimately linked with the acquisition of goods from outside, the internal with the local distribution of food. This latter took two very different forms: the first was general in the irrigational empires and centered on storing and distributing staples; the second is to be found from the earliest times in peasant and bush communities, and focused on the local sale of fresh victuals and prepared food. These varied sources of origin contributed different constituent elements to the institution of the market."

"Polanyi's account is consistent with a much broader range of historical experiences in the countries where today we find not only the most stable and long-lived democratic systems but also the most advanced and successful market economies, in Europe, North America, and the Pacific."

"Now I am not sure how right Polanyi is: 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."

"Writing in 1944, the year of the Bretton Woods Conference, Polanyi suggested that the extension of the institutions of the market over the course of the nineteenth century aroused a political reaction in the form of associations and lobbies that ultimately undermined the stability of the market system. He gave the gold standard a place of prominence among the institutions of laissez faire in response to which this reaction had taken place. And he suggested that the opening of national economic decision making to parties representing working-class interests had contributed to the downfall of that international monetary system. In a sense, this book asks whether Polanyi’s thesis stands the test of time. Can the international monetary history of the second half of the twentieth century be understood as the further unfolding of Polanyian dynamics, in which democratization again came into conflict with economic liberalization in the form of free capital mobility and fixed exchange rates? Or do recent trends toward floating rates and monetary unification point to ways of reconciling freedom and stability in the two domains?"

"Hayek translated moral and political problems into an economic idiom. What we need now, I would argue, is a way to uninstall or reverse that translation. Karl Marx attempted just such a project, but his answers were elusive. In a fascinating but little-known 1927 essay, “On Freedom,” Karl Polanyi also attempted such a project, giving us a stylized rendition of what it would mean for a political collective, rather than a firm or a consumer, to make an economic decision—not in the marketplace, where price helps determine our decisions, but in a deliberative assembly, where other considerations are at play. One part of the assembly, representing the interests of the collective, will want to make an investment in a long-term good; healthcare was the example Polanyi chose. Another part of the assembly, representing the workers who would have to make the specific sacrifices for that good, resists that decision. What to do? Argue it out, says Polanyi. Whatever is the final decision, it will be “a direct, internal choice, for here ideals within people are confronted with their costs; here everyone has to decide what his ideals are worth to him.” Notice that Polanyi does not presume any agreement about moral and political ends, as Hayek claimed socialists must. Notice how insistent he is that decisions about production must confront the question of costs. Like Hayek, Polanyi is attuned to the materiality of moral choice, only he believes the question of costs and constraints is best mediated through moral and political arguments in the public square."

"As was rightly pointed out by Karl Polanyi in the 1940s, the 19th century laissez-faire regime can be thought of as one in which society is forced to conform to the needs of the market mechanism. "Instead of the economy being embedded in social relations, social relations are embedded in the economic system" in this laissez-faire regime. However, it was precisely because of this that the system gradually disintegrated from the early 20th century into economic and social chaos. "Since society was made to conform to the needs of the market mechanism, imperfections in the functioning of that mechanism created cumulative strains on the body social.""

"Were he writing today, I am sure Polanyi would suggest that the challenge facing the global community today is whether it can redress these imbalances—before it is too late."

"Where did the modern world come from, and what are the political, economic, and social changes that it wrought? Polanyi doesn’t answer every question, but he’s a good place to start."

"A bare outline of the objective nature of Fascism thus tends to support our interpretation of its philosophy. The Fascist system has to carry on persistently the task begun by the Fascist Movement: the destruction of the democratic parties, organisations, and institutions in society. Fascism must then proceed to attempt to change the nature of human consciousness itself. The pragmatic reasons for its clash with Christianity are due to this necessity. For a Corporative State is a condition of things in which there is no conscious will or purpose of the individual concerning the community, nor a corresponding responsibility of the individual for his share in it. But neither such a will not such a responsibility can pass from our world altogether so long as we continue to conceive of society as a relationship of persons."

"Nineteenth-century civilization rested on four institutions. The first was the balance-of-power system which for a century prevented the occurrence of any long and devastating war between the Great Powers. The second was the international gold standard which symbolized a unique organization of world economy. The third was the self-regulating market which produced an unheard-of material welfare. The fourth was the liberal state. Classified in one way, two of these institutions were economic, two political. Classified in another way, two of them were national, two international. Between them they determined the characteristic outlines of the history of our civilization. Of these institutions the gold standard proved crucial; its fall was the proximate cause of the catastrophe. By the time it failed, most of the other institutions had been sacrificed in a vain effort to save it. But the fount and matrix of the system was the self-regulating market. It was this innovation which gave rise to a specific civilization."

"Both the personnel and the motives of this singular body invested it with a status the roots of which were securely grounded in the private sphere of strictly commercial interest."

"The true nature of the international system under which we were living was not realized until it failed. Hardly anyone understood the political function of the international monetary system; the awful suddenness of the transformation thus took the world completely by surprise. And yet the gold standard was the only remaining pillar of the traditional world economy; when it broke, the effect was bound to be instantaneous. To liberal economists the gold standard was a purely economic institution; they refused even to consider it as a part of a social mechanism."

"At the heart of the Industrial Revolution of the eighteenth century there was an almost miraculous improvement in the tools of production, which was accompanied by a catastrophic dislocation of the lives of the common people."

"Enclosures have appropriately been called a revolution of the rich against the poor. The lords and nobles were upsetting the social order, breaking down ancient law and custom, sometimes by means of violence, often by pressure and intimidation. They were literally robbing the poor of their share in the common, tearing down the houses which, by the hitherto unbreakable force of custom, the poor had long regarded as theirs and their heirs'."

"The Industrial Revolution was merely the beginning of a revolution as extreme and radical as ever inflamed the minds of sectarians, but the new creed was utterly materialistic and believed that all human problems could be resolved given an unlimited amount of material commodities."

"The conclusion, though weird, is inevitable; nothing less will serve the purpose: obviously, the dislocation caused by such devices must disjoint man's relationships and threaten his natural habitat with annihilation."

"Market economy implies a self-regulating system of markets; in slightly more technical terms, it is an economy directed by market prices and nothing but market prices. Such a system capable of organizing the whole of economic life without outside help or interference would certainly deserve to be called self-regulating. These rough indications should suffice to show the entirely unprecedented nature of such a venture in the history of the race."

"The economic system is, in effect, a mere function of social organization."

"Broadly, the proposition holds that all economic systems known to us up to the end of feudalism in Western Europe were organized either on the principle of reciprocity or redistribution, or householding, or some combination of the three. These principles were institutionalized with the help of a social organization which, inter alia, made use of the patterns of symmetry, centricity, and autarchy. In this framework, the orderly production and distribution of goods was secured through a great variety of individual motives disciplined by general principles of behavior. Among these motives gain was not prominent. Custom and law, magic and religion cooperated in inducing the individual to comply with rules of behavior which, eventually, ensured his functioning in the economic system."

"Barter, truck, and exchange is a principle of economic behavior dependent for its effectiveness upon the market pattern. A market is a meeting place for the purpose of barter or buying and selling. Unless such a pattern is present, at least in patches, the propensity to barter will find but insufficient scope: it cannot produce prices."

"The step which makes isolated markets into a market economy, regulated markets into a self-regulating market, is indeed crucial. The nineteenth century-whether hailing the fact as the apex of civilization or deploring it as a cancerous growth-naively imagined that such a development was the natural outcome of the spreading of markets. It was not realized that the gearing of markets into a self-regulating system of tremendous power was not the result of any inherent tendency of markets toward excrescence, but rather the effect of highly artificial stimulants administered to the body social in order to meet a situation which was created by the no less artificial phenomenon of the machine."

"Where markets were most highly developed, as under the mercantile system, they throve under the control of a centralized administration which fostered autarchy both in the household of the peasantry and in respect to national life. Regulation and markets, in effect, grew up together."

"A self-regulating market demands nothing less than the institutional separation of society into an economic and a political sphere. Such a dichotomy is, in effect, merely the restatement, from the point of view of society as a whole, of the existence of a self-regulating market. It might be argued that the separateness of the two spheres obtains in every type of society at all times. Such an inference, however, would be based on a fallacy. True, no society can exist without a system of some kind which ensures order in the production and distribution of goods. But that does not imply the existence of separate economic institutions; normally, the economic order is merely a function of the social order. Neither under tribal nor under feudal nor under mercantile conditions was there, as we saw, a separate economic system in society."

"Social history in the nineteenth century was thus the result of a double movement: the extension of the market organization in respect to genuine commodities was accompanied by its restriction in respect to fictitious ones. While on the one hand markets spread all over the face of the globe and the amount of goods involved grew to unbelievable dimensions, on the other hand a network of measures and policies was integrated into powerful institutions designed to check the action of the market relative to labor, land, and money. While the organization of world commodity markets, world capital markets, and world currency markets under the aegis of the gold standard gave an unparalleled momentum to the mechanism of markets, a deep-seated movement sprang into being to resist the pernicious effects of a market-controlled economy. Society protected itself against the perils inherent in a self-regulating market system-this was the one comprehensive feature in the history of the age."

"Another feature of the reversal of the Speenhamland method was less obvious to most nineteenth-century writers, namely, that the wage system had to be made universal in the interest also of the wage-earners themselves, even though this meant depriving them of their legal claim to subsistence. The "right to live" had proved a death trap to them."

"The Speenhamland episode revealed to the people of the leading country of the century the true nature of the social adventure on which they were embarking. Neither the rulers nor the ruled ever forgot the lessons of that fool's paradise; if the Reform Bill of1832 and the Poor Law Amendment of 1834 were commonly regarded as the starting point of modern capitalism, it was because they put an end to the rule of the benevolent landlord and his allowance system. The attempt to create a capitalistic order without a labor market had failed disastrously. The laws governing such an order had asserted themselves and manifested their_radical antagonism to the principle of paternalism. The rigor of these laws had become apparent and their violation had been cruelly visited upon those who had disobeyed them."

"The pitfalls of the market system were not readily apparent. To realize this clearly we must distinguish between the various vicissitudes to which the laboring people were exposed in England since the coming of the machine: first, those of the Speenhamland period, 1795 to 1834; second, the hardships caused by the Poor Law Reform, in the decade following 1834; third, the deleterious effects of a competitive labor market after 1834, until in the 1870s the recognition of the trade unions offered sufficient protection. Chronologically, Speenhamland antedated market economy; the decade of the Poor Law Reform Act was a transition to that economy. The last period-overlapping the former-was that of market economy proper. The three periods differed sharply. Speenhamland was designed to prevent the proletarianization of the common people, or at least to slow it down. The outcome was merely the pauperization of the masses, who almost lost their human shape in the process."

"Pauperism, political economy, and the discovery of society were closely interwoven. Pauperism fixed attention on the incomprehensible fact that poverty seemed to go with plenty. Yet this was only the first of the baffling paradoxes with which industrial society was to confront modern man. He had entered his new abode through the door of economics, and this adventitious circumstance invested the age with its materialist aura. To Ricardo and Malthus nothing seemed more real than material goods. The laws of the market meant for them the limit of human possibilities. Godwin believed in unlimited possibilities and hence had to deny the laws of the market. That human possibilities were limited, not by the laws of the market, but by those of society itself was a recognition reserved to Owen who alone discerned behind the veil of market economy the emergent reality: society. However, his vision was lost again for a century."

"The connection between rural poverty and the impact of world trade was anything but obvious. Contemporaries had no reason to link the number of the village poor with the development of commerce in the Seven Seas. The inexplicable increase in the number of the poor was almost generally put down to the method of Poor Law administration, and not without some good cause. Actually, beneath the surface, the ominous growth of rural pauperism was directly linked with the trend of general economic history. But this connection was still hardly perceptible. Scores of writers probed into the channels by which the poor trickled into the village, and the number as well as the variety of reasons adduced for their appearance was amazing."

"Speenhamland precipitated a social catastrophe. We have become accustomed to discount the lurid presentations of early capitalism as "sob-stuff:' For this there is no justification. The picture drawn by Harriet Martineau, the perfervid apostle of Poor Law Reform, coincides with that of the Chartist propagandists who were leading the outcry against the Poor Law Reform. The facts set out in the famous Report of the Commission on the Poor Law (1834), advocating the immediate repeal of the Speenhamland Law, could have served as the material for Dickens's campaign against the Commission's policy. Neither Charles Kingsley nor Friedrich Engels, neither Blake nor Carlyle, was mistaken in believing that the very image of man had been defiled by some terrible catastrophe. And more impressive even than the outbursts of pain and anger that came from poets and philanthropists was the icy silence with which Malthus and Ricardo passed over the scenes out of which their philosophy of secular perdition was born."

"The mechanism of the market was asserting itself and clamoring for its completion: human labor had to be made a commodity. Reactionary paternalism had in vain tried to resist this necessity. Out of the horrors of Speenhamland men rushed blindly for the shelter of a utopian market economy."

"Pauperism had become a portent. But its meaning was still anybody's guess."

"The change of atmosphere from Adam Smith to Townsend was, indeed, striking. The former marked the close of an age which opened with the inventors of the state, Thomas More and Machiavelli, Luther and Calvin; the latter belonged to that nineteenth century in which Ricardo and Hegel discovered from opposite angles the existence of a society that was not subject to the laws of the state, but, on the contrary, subjected the state to its own laws."

"Edmund Burke was a man of different stature. Where men like Townsend failed in a small way, he failed in a great way. His genius exalted brutal fact into tragedy, and invested sentimentality with the halo of mysticism."

"Bentham possessed neither the sleek complacency of a Townsend nor the all too precipitate historicism of a Burke, Rather, to this believer in reason and reform the newly discovered realm of social law appeared as the coveted no man's land of utilitarian experimentation."

"The true significance of the tormenting problem of poverty now stood revealed: economic society was subject to laws which were not human laws. The rift between Adam Smith and Townsend had broadened into a chasm; a dichotomy appeared which marked the birth of nineteenth-century consciousness. From this time onward naturalism haunted the science of man, and the reintegration of society into the human world became the persistently sought aim of the evolution of social thought. Marxian economics-in this line of argument was an essentially unsuccessful attempt to achieve that aim, a failure due to Marx's too close adherence to Ricardo and the traditions of liberal economics."

"For a century the dynamics of modern society was governed by a double movement: the market expanded continuously but this movement was met by a countermovement checking the expansion in definite directions. Vital though such a countermovement was for the protection of society, in the last analysis it was incompatible with the self-regulation of the market, and thus with the market system itself. That system developed in leaps and bounds; it engulfed space and time, and by creating bank money it produced a dynamic hitherto unknown. By the time it reached its maximum extent, around 1914, every part of the globe, all its inhabitants and yet unborn generations, physical persons as well as huge fictitious bodies called corporations, were comprised in it. A new way of life spread over the planet with a claim to universality unparalleled since the age when Christianity started out on its career, only this time the movement was on a purely material level. Yet simultaneously a countermovement was on foot. This was more than the usual defensive behavior of a society faced with change; it was a reaction against a dislocation which attacked the fabric of society, and which would have destroyed the very organization of production that the market had called into being."

"One might suppose that freedom of production would naturally spread from the purely technological field to that of the employment of labor. However, only comparatively late did Manchester raise the demand for free labor. The cotton industry had never been subject to the Statute of Artificers and was consequently not hampered either by yearly wage assessments or by rules of apprenticeship. The Old Poor Law, on the other hand, to which latter-day liberals so fiercely objected, was a help to the manufacturers; it not only supplied them with parish apprentices, but also permitted them to divest themselves of responsibility towards their dismissed employees, thus throwing much of the burden of unemployment on public funds."

"The road to the free market was opened and kept open by an enormous increase in continuous, centrally organized and controlled interventionism. To make Adam Smith's "simple and natural liberty" compatible with the needs of a human society was a most complicated affair."