Saturday, 2 July 2016

Karl Polanyi's Pollyanna World- part 1

Karl Polanyi, writing towards the end of the Second World War, thought Nineteenth-century civilization rested on four institutions- those favored by Pollyanna cheerleaders for a prosopic Nixon's perennial Third Term.

1) '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. '

China had a Civilization in the Nineteenth Century. No 'balance of power' system was relevant to its trajectory. Indian Civilization, similarly, was entirely unaffected by any such consideration. Africa, between 1880 and 1914 might appear to have been affected but no lasting effect is discernible.

However, it may be argued that Asia and Africa don't have real 'Civilization' for some Hegelian reason. It is certainly true that Asian and African Civilizations declined relative to European Civilization over the course of the Nineteenth Century. Further, it must be conceded that Ottoman Turkey probably gained some respite from Russian aggression thanks to 'Balance of Power' considerations. However, its own Civilization did not rest upon the 'balance of power system' but had a trajectory similar to that of China and India.

Ultimately, though Turkish withdrawal from the Balkans did light the touch paper of general conflagration, it wasn't because the 'Balance of Power' was endangered but because, as Prince Otto Von Bismark said to the Sanjak of Novibazar- niggah pleeze, bitches be krazeee.

What about the White population of North America? They had a rapidly growing Civilization in the Nineteenth Century. Lord Canning said- ' I called the New World into existence, to redress the balance of the Old.'  Does that mean North American Civilization rested on the 'balance of power system'? Nope. Canning was just indulging in grandiloquent Parliamentary piffle in the context of some inconsequential dispute between Spain and Portugal long forgotten by History.

The fact is, during the course of the Nineteenth Century, the U.S., untrammeled by any 'Balance of Power' consideration, developed so markedly superior a technological Civilization that it ultimately was able to intervene on the European Continent to such good effect that European Chancelleries gave up any pretense of geopolitical salience.

What about Europe itself between the Treaty of Vienna and the assassination of the Archduke? Surely, its Civilization did rest on the 'Balance of Power'? After all, but for Metternich and Talleyrand and other such clever diplomatists, surely Europe would have had another hundred years war?
The answer is no. Talleyrand's cleverness caused the British to let Napoleon loose. Second time round, the Allies garrisoned France and only left after collecting huge reparations. There could be no doubt that a third occupation would have resulted in the decimation and enslavement of the population. This was because there was a 'Concert of Europe' consensus that 'Balance of Power' considerations had no place in dealing with Civilizations that had gone utterly bonkers.

'Balance of Power' systems are chaotic. They break down. No Civilization has rested on such a basis. The Etruscans and the Romans aren't holding each other in check on the banks of the Tiber. The Etruscans went under. Their language disappeared though, no doubt, their Civilization contributed something to that which spread to distant lands under the name of Rome.

Why did Europe experience two devastating world wars in the Twentieth Century? The answer is simple. Diplomats did not understand Military Strategy and the Generals were as stupid as shit. France didn't have an offensive doctrine in either war but its Diplomats acted as though it did. Thus its system of alliances were worse than worthless. They meant that Germany could always make short term gains for which it would pay a long term price.

In other words, there was no actual 'Balance of Power' in the sense that a small perturbation set off reactions quickly restoring equilibrium. Polyani thought there was a 'Balance of Power' because he was writing in 1944 and thought that by 1964 Germany would once again be a Great Power, though perhaps with a different set of allies.
Polyani was wrong. The 'Balance of Power' balanced nothing but bombast till bombast turned into bombardment and truth could at last go naked wreathed in the fogs of war.

2) The second (institution upon which Nineteenth Century Civilization rested) was the international gold standard which symbolized a unique organization of world economy.

Was there really an 'international gold standard' in the Nineteenth Century? If you went from London to Peking in the year 1830 or 1880, could you pay your hotel bill with a gold sovereign? Nope. Imperial China was a silver based economy. So, for the most part, was India. Cowrie shells had currency in some upcountry market towns.
There was no 'international monetary standard' in the Nineteenth Century. When Germany got a lot of gold out of France after the War of 1870, it was able to introduce a gold backed currency. Similarly, Japan went on to gold after beating the Chinese and extorting reparations. Going on to Gold, enabled both Japan and Germany to attract investment. However, both countries took a militaristic path in the foolish belief that Wars could turn a profit for their countries. This meant everyone went off Gold during the Great War.

An Economic network, or series of linked markets, may indeed feature a particular form of liquidity. However, a change in the type of liquidity does not destroy that network or those markets. Indeed, liquidity can be endogenously determined on the basis of mutual trust and common knowledge.
If this is the case for purely economic networks, in which agents may not speak each others' languages or even never actually personally interact, how much more must it be the case that a Civilization does not rest on a particular convention re. liquidity.

3) The third (institution upon which Nineteenth Century Civilization rested) was the self-regulating market which produced an unheard-of material welfare.
Markets are not self-regulating. The price mechanism is said to be 'self-regulating' iff markets clear- i.e. no willing buyer or seller is unable to transact at the closing price. But, this can be by means of a correlated equilibrium rather than a Walrasian tatonnement. A set of interconnected Markets which always clear can be called 'self-regulating' under certain highly artificial assumptions.
However, Economists recognize that if there is 'Knightian Uncertainty'- i.e. some things can't be even stochastically predicted- then there will be 'hedging effects' such that any general equilibrium is 'anything goes'- we don't know if if the aggregate outcome is good or bad and thus if some collective reparative action is required.

Polyani might think that Indian or Chinese Civilization, at least those portions of each characterized by 'self-regulating' (i.e. not regulated at all) markets 'produced unheard-of material welfare'. There is no evidence for this. On the contrary, as current Economic theory would predict, the presence of Knightian uncertainty in rain-fed agricultural areas led to highly perverse hedging effects which reduced material welfare all round.

4) The fourth (institution upon which Nineteenth Century Civilization rested) was the liberal state.
It is certainly the case that some Civilizations, experiencing rapid economic growth, develop some liberal (i.e. non coercive) institutions or enclaves which in turn might be said to 'capture the State'. However, that very same Civilization, on the basis of exigent circumstances, might reverse course either tactically or strategically.
It has never been the case that a decision by the State to re-christen itself as 'Liberal', or to import or fabricate non-coercive Institutions towards that end, has, by itself, had any impact on a Civilization.

 This was well known in the Nineteenth Century. King Joseph in Spain did not cause some great convulsion in the mores or mode of production of the country he briefly ruled. Nobody really believed that the Iberian peninsula would turn into a Liberal paradise if the Infanta prevailed over the Carlists anymore than anyone was foolish enough to think that a Tzar who had read Rousseau could change the character of his Empire.
Why can't the State change the nature of the Civilization over which it presides by assuming a 'Liberal' coloring? Why couldn't the British Raj change the nature of Hindu Civilization? My parents generation drank tea, played cricket and pursued middle class English professions- lawyers, accountants, civil servants- not because they were ruled by the British but because people like Swami Vivekananda and Mahatma Gandhi- who considered tea to be a declasse poison, cricket to be unmanly folly, and white collar professions to be the vilest treachery- had mobilized the masses to chuck out the White Man.

The answer has to do with, not 'embeddedness' (which only applies to people who have grown up in a particular culture and is quickly defeated by mimetic effects featuring quite small exit and entry) but 'incentive compatibility' (which applies equally to all agents with elastic response- and this includes customary mimetic leaders absent an alien countervailing power).
As India gained, first dyarchy, and then 'swaraja'; tea was increasingly marketed by Indians for Indians, cricket was played by Indians for Indians, worthless white-collar drones serviced a Queen Indira not Elizabeth.
 States are Stationary Bandits. They can change their complexion but nothing changes unless they alter the way the finance themselves. If this creates new incentive compatible 'riskless assets' then there is a transmission mechanism to the determinants of the underlying Civilization. Otherwise nothing changes.

Polyani thought otherwise-
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. The gold standard was merely an attempt to extend the domestic market system to the international field; the balance-of-power system was a superstructure erected upon and, partly, worked through the gold standard; the liberal state was itself a creation of the self-regulating market. The key to the institutional system of the nineteenth century lay in the laws governing market economy.

We now know that Polyani was hopelessly wrong. The gold standard has no importance at all. What matters is that international Capital markets clear. For this to happen, it is sufficient that some agents have access to a Futures market in at least one currency or commodity. China isn't on the gold standard. Nor is India. Indo-Chinese commerce has grown hugely because there is always an arbitrageur willing to assume any relevant risk.

The fall of the gold standard did not cause wars. In so far as Germany and Japan were able to use the reparations gained from Wars to go on to Gold, it may be said that the Gold Standard helped cause Europe's two Great Wars because German and Japanese Generals thought winning new Wars would cause the inflow of yet more Gold and that would be a good thing because....urm...that worked out real well for Imperial Spain didn't it? If didn't? Fuck. Why didn't the War College get the memo?

The Gold Standard was not 'an attempt to extend the domestic market system to the international field'. England didn't go on Gold to trade with other countries. It did so because bimetallism is stupid- it increases uncertainty, exogenous monetary shocks, and thus drives up transaction costs. It also fucks up Fiscal Policy. Gold aint magic. It's a solution to a coordination problem. A primitive one. That's why the 'goldbug' on any comments column is bound to be a fucking retard or a senile loonytoons.

Still, I suppose, this explains Polyani's lasting popularity. Goldbugs and paranoid retards and senile loonytoons we will always have with us.

Much reading enstoopidifies. Books written on the basis of much reading enstoopidify so egregiously we end up quoting them- like Emily Dickenson who went ass to mouth on her first date and thus died a spinster with unkissed lips .
I think that's what Plato was really getting at when he spoke of kalokagathia. Incidentally, his 'Parmenides' is but the most spectacular example of the grand tradition of Revenge Porn which stretches back to the Cave paintings of Lascaux.
See what I did just now? It could be called pulling a Polanyi- except there was a Michael Polanyi who was nothing like his idiot brother Karl.

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