Better than (Karl) Polanyi

There was some debate on Twitter yesterday about Karl Polanyi’s . Noah Smith linked to this post reporting some research (can’t say it sounds very rigorous) taken to indicate that economists don’t read this book. Summary finding:

“All in all, 66 persons responded (25 percent). This isn’t at all bad, considering that these were cold calls. Approximately 3 percent of economists at elite departments have read Polanyi (assuming that those that did not reply have not read him).”

Hmm. Not sure about that assumption. Anyway, Noah’s response was that economists tend to read new books. Dani Rodrik said: “Polanyi is a hard read and hard sell for economists. But he’s been incredibly influential for my own work.” I got some (very) mild Twitter stick for saying I had read it but wouldn’t set it for my students.

[amazon_image id=”080705643X” link=”true” target=”_blank” size=”medium” ]The Great Transformation: The Political and Economic Origins of Our Time[/amazon_image]

There are several reasons for this. Above all, the book is historically inaccurate – Deirdre McCloskey is the latest of many people to point this out in her new book, . So if one reads it, it needs to be from a history of thought perspective. Secondly, it’s about social relations and culture, so not central for economics students even though I wholeheartedly agree that economists in general need more hinterland in other areas of social science and history.

It’s also a dense read, and there are better books to recommend to students to introduce them to the social context of markets. I’d say the original Albert Hirschman books have aged better – for one – and aren’t marred by inaccuracies like The Great Transformation. Of more recent vintage, I think John McMillan’s James Scott’s and Michael Sandel’s cover the territory better.

[amazon_image id=”0674276604″ link=”true” target=”_blank” size=”medium” ]Exit, Voice and Loyalty: Responses to Decline in Firms, Organizations and States[/amazon_image] [amazon_image id=”0393323714″ link=”true” target=”_blank” size=”medium” ]Reinventing the Bazaar: A Natural History of Markets[/amazon_image] [amazon_image id=”0241954487″ link=”true” target=”_blank” size=”medium” ]What Money Can’t Buy: The Moral Limits of Markets[/amazon_image] [amazon_image id=”B00DO8SACA” link=”true” target=”_blank” size=”medium” ]Seeing Like a State: How Certain Schemes to Improve the Human Condition Have Failed (Yale Agrarian Studies) by Scott, James New Edition (1999)[/amazon_image]


Coase in theory and Coase in practice

While out and about yesterday, I read a little book from the IEA that I’d only dipped into before, , edited by Cento Veljanovski. It’s a useful introduction to Coase (although he wrote so clearly that there’s no excuse for not tackling his classic papers, The Nature of the Firm and The Problem of Social Cost.)

[amazon_image id=”0255367104″ link=”true” target=”_blank” size=”medium” ]Forever Contemporary: The Economics of Ronald Coase (Readings in Political Economy)[/amazon_image]

The book has chapters providing a biography and a general overview, and then several looking at the applications of Coaseian thinking in different areas such as water, environmental protection, public goods provision, financial markets and even the sharing economy. It starts with the Coase theorem: that when property rights are clearly assigned and there are no transactions costs (such as those involved in acquiring information, negotiating, monitoring compliance etc), then there are no externalities leading to a divergence between private and social costs: the parties involved will negotiate their way to the efficient outcome. ‘Externalities’ are symmetric, he argued: if you claim a right to clean air, you are costing me the opportunity to pollute. Who compensates whom will depend how the property rights are assigned. If you indeed have your clean air right, I will have to bargain with you to pay you for the pollution; if I have the right to produce emissions, you will have to pay me to desist.

Coase made it clear he took the existence of transaction costs very seriously, and argued that every situation had to be carefully assessed to determine the most welfare-enhancing course of action. He certainly challenged the market failure framework established by Pigou, still used to consider the rationale for public policy interventions. Coase has often been taken to say more generally that it’s always best to leave it to the market, because people can bargain their way to solutions – and that is certainly the interpretation this volume puts on him, as you would perhaps expect from the IEA.

I think one has instead to take Coase at face value, and in each situation look at the incentives people face and the transaction costs involved in private bargaining and in the public sector alike – this determined empiricism is why I like Coase so much. As the essay here by Stephen Davies notes: “The boundaries of what is possible in this regard have shifted over time.” The useful bibliography of Coase’s work shows how seriously he took his own conclusion that you have to look in detail at each industry, its history and specificities before pontificating; as is well known, he described anything else as ‘blackboard economics’. Indeed, the people who arguably took him most seriously were the later Nobel winners, Elinor Ostrom and Oliver Williamson, who each in their won way focused on the detail of the institutions that exist to co-ordinate individual actions.

In a nice case study, Davies looks at how turnpike roads – toll roads- were the common means to expand Britain’s main road network in the late 18th and early 19th century. They were an example of club goods – non-rival in consumption, but excludable. Later of course in the UK roads came to be considered a pure public good to be provided by the state. Now we have one toll motorway, and some talk of more. Other countries, including statist France, have many toll roads. There is no right answer.

The book ends with a chapter on the sharing economy, a very interesting essay on the implications of a large decline in certain transactions costs.

There won’t be much here that is new to people who are already familiar with Coase, but – with the caution about its free market slant – it is a clear and accessible guide for students. And available free online as a pdf.


Measuring and markets

I’ve been reading Michel Callon’s introduction to the edited volume It’s about the performativity of economics, a question that interests me (although I do struggle with the academic jargon of sociology; at least my own subject’s jargon is familiar). Callon writes: “The most interesting element is to be found in the relationship between what is to be measured and the tools used to measure it. The latter do not merely record a reality independent of themselves; they contribute powerfully to shaping, simply by measuring it, the reality that they measure.”

[amazon_image id=”0631206086″ link=”true” target=”_blank” size=”medium” ]Laws of Markets (Sociological Review Monographs)[/amazon_image]

Needless to say, the question of how the classification and structures embedded in economic statistics shape the reality of the economy (through affecting understanding, behaviour and policy) is of keen interest to me. For instance, part of the debate about productivity is about what it measures, but also partly about what it defines. What is productivity when products play a minority role in economic activity? The Callon intro doesn’t ultimately enlighten: it seems to me to place too much weight on economics as a subject, for markets existed long before economists did. There has to be some two-way influence between reality and the attempt to make systematic a description of it. In fact, I don’t think economics is as different from some other subjects as the performativity analyses suggest. For instance, classification in biology is not completely dissimilar. I also wish other social scientists would acknowledge that economists *do* think a lot about the specifics of markets as social institutions – see, for one, John McMillan’s brilliant book

[amazon_image id=”0393323714″ link=”true” target=”_blank” size=”medium” ]Reinventing the Bazaar: A Natural History of Markets[/amazon_image]


Still, there is something in this territory. It’s particularly important for sustainability that the concepts and measurements economists define and gather place ‘the economy’ in nature and the physical world. To be continued…


Big blue plenty

Courtesy of the terrific weekly newsletter from Benedict Evans, this link to a terrific article about Krushchev’s 1959 visit to IBM in what later became Silicon Valley. This is a good excuse to plug again one of my favourite books, by Francis Spufford. The book also has a supplementary website with some fascinating short essays by the author – like this one on ‘plenty’ or (lack of) .

Among the many reasons I love is that it must be the first time a literary author has been able to describe the formal equivalence between a competitive general equilibrium and a centrally planned economy, as set out in the socialist calculation debate of the 1930s. Anyway, the book starts with Krushchev’s 1959 US visit, although not his admiration of the cornucopia of food and democratic access in the IBM cafeteria in San Jose. It is a gripping read, a true story told with the verve of a novel.

[amazon_image id=”0571225241″ link=”true” target=”_blank” size=”medium” ]Red Plenty[/amazon_image]


(Im)moral markets

A snippet from Dani Rodrik’s :

“As Albert Hirschman reminds us in his magisterial book , the thinkers of the late 17th and early 18th centuries reasoned that the proft-seeking motive would countervail baser human motivations such as the urge for violence and domination over other men. The term ‘doux’ (sweet) was often appended to ‘commerce’ to suggest commercial activities promoted gentle and peaceful interactions. …. These early philosophers [eg ] encouraged the spread of markets, not for reasons of efficiency or for the expanson of material resources but because they thought it would promote a more harmonious, more ethical society. It is ironic that thre centuries later markets have come to be associated in the eyes of many with moral corruption.”

Shades of Deirdre McCloskey’s ?

[amazon_image id=”0393246418″ link=”true” target=”_blank” size=”medium” ]Economics Rules: The Rights and Wrongs of the Dismal Science[/amazon_image]