Savitri Era of those who adore, Om Sri Aurobindo and The Mother.

Friday, November 27, 2009

Socially redemptive qualities of money and markets

The breakdown of the neoliberal world economy from The Memory Bank by keith
Lessons from Marcel Mauss and Karl Polanyi
Anthropology in the financial crisis

Everybody knows that we are living through a hinge moment in world history generated by the financial crisis of 2008. The collapse of the credit boom has already had dramatic social consequences: the default and nationalization of banks, dramatic losses of personal savings and mortgage foreclosures on a massive scale. Where it will all end is anyone’s guess. Apart from these tangible effects, the present crisis also concerns ideas about the economy. Free market economics has gained an unparalleled dominance within the academy and society more generally in the last three decades.

Economists, armed with impenetrable mathematical arguments, encouraged politicians like Margaret Thatcher and Gordon Brown to claim ‘there is no alternative’ (TINA) to their market fundamentalism. They preached an eternally benevolent spiral, ‘beyond boom and bust’, guaranteed by radically reducing the role of the state and politics in distribution – the question of who gets what in the world. The collapse of this pretence has been as sudden as the paper fortunes built on it. All too often a distinction is drawn between the world of finance and the ‘real economy’, as if borrowing money for holidays against rising house prices and the theft of public assets by corporate predators were not real. I argue for a perspective that treats money as an integral part of society rather than as something semi-detached from it (Hart 2000, 2007a).

The period since the 1980s, sometimes referred to as ‘neo-liberal globalization’, has seen two apparently contradictory trends. On the one hand, for the first time significant numbers of anthropologists have studied capitalism in its central workings; on the other, the majority have become more insular and introverted, offering fragmented narratives within a narrow framework of time and space, while leaving to others questions of where the world is heading and why. The breakdown of the economists’ intellectual hegemony represents a chance for us to link our engagement with people’s lives to anthropology’s original mission to understand humanity as a whole. We have perhaps been intimidated into adopting a more blinkered posture than is warranted by our own intellectual traditions. [...]

The rise and fall of national capitalism
In order to understand the potential of our moment in history, we need to reflect on competing visions of the development of capitalism in the twentieth century and before. There is no more fruitful place to begin such reflection than Karl Polanyi’s masterpiece, The Great Transformation: the political and economic orgiins of our times, published in 1944 and largely gestated in England during the 1930s (Polanyi 2001). It opens with a highly selective account of the making of world society in the nineteenth century, a society that Polanyi not unreasonably considered to be lying in ruins as he wrote. Money was a central feature of all four pillars of this civilization. Polanyi identified the interest that had sustained a century of peace in Europe with what he insisted on calling haute finance,
“an institution sui generis, peculiar to the last third of the nineteenth and the first third of the twentieth century, [which] functioned as the main link between the political and economic organization of the world in this period.”(Polanyi 2001:10)
The international gold standard “was merely an attempt to extend the domestic market system to the international field”; the balance-of-power system was a superstructure built on its foundation; and the gold standard’s fall “was the proximate cause of the catastrophe”. The self-regulating market was “the fount and matrix of the system”; it had “produced unheard-of material welfare”, but it was utopian in its pursuit of an autonomous circuit of commodities and money. The liberal state, in the name of market freedom, forced all other interests in society to submit to the freedom of capital, another word for money (Ibid:3).
Later in the book, Polanyi listed money as one of the three “fictitious commodities”. Labour, land and money are essential to the industrial system; they must therefore be bought and sold, but they were definitely not produced for sale. Labour is human activity that is part of life itself; land is another word for nature; and “actual money is merely a token of purchasing power which, as a rule, is not produced at all, but comes into being through the mechanism of banking or state finance” (Ibid:72). Here Polanyi comes close to suggesting that a free market in money entails buying and selling society itself. Money and markets for him have their origin in the effort to extend society beyond its local core. Polanyi believed that money, like the sovereign states to which it was closely related, was often introduced from outside; and this was what made the institutional attempt to separate economy from politics and naturalise the market as something internal to society so subversive.
Polanyi distinguished between “token” and “commodity” forms of money. “Token money” was designed to facilitate domestic trade, “commodity money” foreign trade; but the two systems often came into conflict. Thus the gold standard sometimes exerted downward pressure on domestic prices, causing deflation that could only be alleviated by central banks expanding the money supply in various ways. The tension between the internal and external dimensions of economy often led to serious disorganization of business (Ibid: 193-4). Another way of putting this contradiction is to oppose the liberal definition of money as just a “medium of exchange” to one as a “means of payment”. Here Polanyi echoes Knapp, Keynes and others who wished to draw attention to the political possibilities for state manipulation of “purchasing power”. (I should mention in parenthesis that Polanyi’s opposition between token and commodity money was the main source for my own analysis of the interdependence of the two sides of the coin over twenty years ago, Hart 1986).
The final collapse of the international gold standard was thus one consequence of the ruinous attempt to delink commodity and token forms of money. In a trenchant discussion of the economic crisis of the 1930s that has echoes of the world economy today, Polanyi highlighted the separation of the money system from trade. As restrictions on trade grew, money became more free: [...]

Mauss and Polanyi
Do anthropologists have something to say about all this? It would help if we could bring the distributive consequences of finance down to a concrete level. Our readers might then be able to engage with money not as a superhuman force with devastating effects, but as the outcome of ideas and institutions that can and should be changed by human action. Kula objects (Malinowski 1922) have magical power for those who exchange them, but anthropologists have shown their social logic and instrumentality. We have always invented concepts to describe and explain social processes quite different from those familiar at home. The current crisis presents us with a compelling reason to do so again, this time in a global context. When others may be losing their heads, there are rich precedents in the anthropological literature for where to start.
We can do no better than to renew our engagement with the writings of Marcel Mauss and Karl Polanyi. The ideas of these foundational writers in economic anthropology have been sliced and diced – like mortgage debt – to serve different purposes over the years, but their perspectives on political economy can help us to make sense of the current situation and to recommend a path forward beyond market fundamentalism. Mauss’s reflections on money and exchange in The Gift (1925) have often been misunderstood. Probably his essay’s title and later academic discourse have obscured his concern there to use unconventional money forms to illuminate some potentially dangerous aspects of money forms based on capitalist corporations and the welfare state. Mauss was a cooperative socialist in the British tradition of the Rochdale Pioneers, Keir Hardie and the Webbs. He was a tremendous Anglophile and spent the war on the front line as a translator for British and Australian troops. He also kept a close eye on the cooperative movement in Switzerland and Germany. He lost part of his inheritance financing a cooperative bakery in Paris. But his metier was as a political journalist. His political writings (Mauss 1997) run to 700 pages, about two-thirds of them written in 1920-25, the period when he wrote The Gift. He was anti-capitalist, but not anti-market. He was pleased that his uncle’s idea of an organic division of labour was extended to international economy after the war. [...]

Polanyi and Mauss made sure that their more abstract understandings of political economy were grounded in the everyday lives of concrete people, thereby lending to field research the power of general ideas. I have already noted a recent increase in anthropological research on aspects of capitalism, but anthropologists have largely left the global effects of an unequal distribution of money, the class conflict between rich and poor everywhere, to other branches of the academic division of labour, especially to economists of whatever political persuasion. There are rich precedents for the anthropological study of distribution in particular contexts, but we still tend to privilege the rural inhabitants of the former colonial empires and settle for cultural representations of isolated social fragments.
The missing link between the everyday and the world at large can be found in the work of Polanyi and Mauss. An unblinking focus on distribution at every level from the global to the local reveals how the social consequences of political economy and the way it is understood by those who make it are one and the same social process. The current crisis renders this insight particularly visible, since it challenges contemporary financial ideas, while its tangible distributive effects are felt and feared throughout the world. We are clearly witnessing a power struggle of potentially awesome consequences. Each new political response to the latest economic calamity evokes the spectre of the Great Depression and its bloody aftermath. The mask of neo-liberal ideology has been ripped from the politics of world economy.
Money in the making of world society
What light do Mauss and Polanyi throw on the part played by markets and money in the making of world society? Mauss held that the attempt to create a free market for private contracts is utopian and just as unrealizable as its antithesis, a collective based solely on altruism. Human institutions everywhere are founded on the unity of individual and society, freedom and obligation, self-interest and concern for others. The pure types of selfish and generous economic action obscure the complex interplay between our individuality and belonging in subtle ways to others. He was highly critical of the Bolsheviks’ destruction of confidence in the expanded sense of sociability that sustained the market economy (Mauss 1997). In his view, markets and money were human universals whose principal function was the extension of society beyond the local sphere, even if they did not always take the impersonal form we are familiar with. This was why, in a long footnote to The Gift (Mauss 1990:100-102), he disputed Malinowski’s (1921) assertion that kula valuables could not be considered to be money. [...]

It is odd that Polanyi (1944) appears sometimes to reduce the structures of national capitalism to an apolitical ’self-regulating market’. For his analysis of money, markets and the liberal state was intensely political, as was his preference for social planning over the market. His war-time polemic, reproducing something of his opponents’ abstractions, was more a critique of liberal economics than a realistic account of actually existing capitalism. This would explain the lingering confusion over whether he thought a ‘disembedded’ market was possible or just a figment of liberal ideology, ‘market fundamentalism’. Similarly, one could argue either that neoliberalism did effectively disembed the market economy or that its claim to have done so was a mystification of the fact that markets were still embedded in largely invisible political processes. In either case, the postwar turn to ‘embedded liberalism’ (Harvey 2005) or social democracy — what I have called the apogee of national capitalism — is only weakly illuminated by The Great Transformation.
I have made much here of Mauss’s idea that the principal function of money and markets is to extend society beyond its present limits. Thus Malinowski’s ethnography of the kula ring could be taken as a metaphor for the world economy of his day, with island economies that were not self-sufficient being drawn into trade with each other by means of personalized exchange of valuables between local leaders. These canoe expeditions were dangerous and magical because their crews were temporarily outside the realm of normal society. This always happens when society’s frontiers are pushed rapidly outwards, as they have time and time again in the last two centuries and long before that. The period of ‘neoliberal financialization’ could be compared with previous episodes in the history of global capitalism, such as the dash to build continental railroads, the gold strikes in California, Alaska and South Africa or the wild rubber boom of the mid- to late nineteenth century. There are many analogous episodes to be found in the mercantilist economies that emerged during the period 1500-1800, notoriously the ‘South Sea bubble’ and the ‘Tulips craze’. Similarly, the last three decades saw a rapid extension of society’s frontiers after the postwar convergence of state and market in national capitalism reached its limit in the 1970s. The quick wealth and cowboy entrepreneurship we have just witnessed was made possible by the absence of regulation in a period of global economic expansion. The end of the bubble marks an opportunity to consider how world markets might now be organized in the general interest. [...]

The world economy is more integrated than it was even two decades ago; we need new principles of political association with which to put in place more effective regulatory frameworks. Fragmentation would be a disaster. Clearly the political questions facing humanity today concern distributive justice. The long period of Western dominance of the world economy is coming to an end. New actors on the world stage will have their say about who gets what. An escalation of war and general fractiousness is quite likely. Under these circumstances, a focus on the socially redemptive qualities of money and markets might be quite salutary. In this constructive sense, I depart from Polanyi’s conclusions; but I fear that his time as a prophet is yet to come (Hart 2008c).

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