This week we move into the world of development economics, starting with an understanding of the liberal creed which generated it. We will focus on the way in which thinking about change and development has evolved as described by Polanyi. In historical terms, it’s interesting that the classical economists were influenced by a unique period of economic development – the industrial revolution – which had characteristics unlike the period before or after, particularly for the treatment of the fictitious commodities (land, labour, and capital).
“…in the case of economists…their whole theoretical system was erected during this spate of “abnormalcy,” when a tremendous rise in trade and production happened to be accompanied by an enormous increase in human misery – in effect, the apparent facts on which the principles of Malthus, Ricardo, and James Mill were grounded reflected merely paradoxical tendencies prevailing during a sharply defined period of transition.” (Polanyi, ch.9)
Is it possible that the economic thinkers of that era erroneously associated creative destruction with the advances in wealth? Might political management of the destructive aspects of the transition have been possible?
This may be a parallel to the liberal economists of the 20th century, influenced by a similarly unique period of growth and movement towards greater equality after the Second World War. Thomas Piketty (2014) in his acclaimed new book, Capital in the Twenty First Century, points to a similar problem for economists deducing the equalizing effects of capitalism over time; other factors (inflation, redistributive taxation) were at work in the periods most frequently cited. One of Piketty’s key conclusions is that capitalism does indeed tend inexorably towards extreme concentration of wealth:
“Piketty shows that modern economic growth and the diffusion of knowledge have allowed us to avoid inequalities on the apocalyptic scale predicted by Karl Marx. But we have not modified the deep structures of capital and inequality as much as we thought in the optimistic decades following World War II. The main driver of inequality—the tendency of returns on capital to exceed the rate of economic growth—today threatens to generate extreme inequalities that stir discontent and undermine democratic values. But economic trends are not acts of God. Political action has curbed dangerous inequalities in the past, Piketty says, and may do so again.” (Harvard University Press summary).
These observations are prelude to our exploration of Polanyi’s economic history and exploration of the social and political implications of that history. We’ll then turn to late 20th century thinking about economic development in the Meier and Stiglitz text.
Part II of Polanyi’s book – comprising chapters 3 to 18, is labelled “rise and fall of the market economy” and is divided into two parts: I – the Satanic Mill (chapters 3-10), and II – Self-protection of Society (chapters 11-18).
Polanyi – Notes for students (these are my notes on Block’s introduction, tying the key ideas to themes that we will explore later in the course).
Meier and Stiglitz
We will use week 3 as a catch-up reading week now that you all have the books. For week 4, please be prepared to discuss the
Seminar this week will review the readings and questions listed under required reading, and discuss the self-assessment questions.
We will also discuss the review essay, (20%) and strategies for successful completion.