Uncomplaining acceptance of the reality of society gives man indomitable courage and strength to remove all removable injustice and unfreedom. As long as he is true to his task of creating more abundant freedom for all, he need not fear that either power or planning will turn against him and destroy the freedom he is building by their instrumentality. This is the meaning of freedom in a complex society; it gives us all the certainty that we need.

Karl Polanyi The Great Transformation I

f there is one thing one should know about Adam Smith, it should be that he is historically and contemporarily furnished as a pioneer thinker of modern market economy, of freedom of trade and capitalism, of the invisible hand and the notion of laissez-faire. It is no wonder that Smith was rendered by figure like Marx to be critqued as bourgeois economist and later rarely taken up by the left- leaning intellectual world. It is, too, no mistake that Smith has, in Book I of the Wealth of Nations, delineated the benefits modern society has received from the division of labor, the expansion of the market, and the moderation between productive and unproductive labor, between physiocracy and mercantilism in Book III and IV, within which emrges his so-called system of natural liberty; however, it is an altogether different issue to proclaim his consideration on the role of the government by which, and only by which, a political ideology can be attributed.

This essay attempts to investigate how Adam Smith has been taken up, interpreted, mobilized by thinkers in history, and whether their assignments of Smith as the pioneer of free-market theorist are justified. Specifically, it attempts to examine Karl Polanyi’s rendering of Smith as an exemplar, whose contributions to the field of sociology, anthropology and economics has receives no scholarly shortage, yet little work has been done treating Polanyi’s deployment of early economic thinkers as a subject in itself. This essay strives to delineate Polanyi’s treatment of Smith mainly on two aspects, one moral and one political, the first of which claims that Polanyi assembles Smith as an early economist that still retain what he calls the ‘humanist’ aspect of society, theorizing upon the moral instead of biological foundation of human beings. The second aspect points out that Polanyi portrays Smith as relying overly upon the afore-mentioned moral foundation, therefore altogether ignoring the institutional and political aspects of economics, which exemplified perfectly in Polanyi’s critique of Smith’s “propensity to trade” as part of the human nature instead of some form of formal and external construction.

This essay, then, turns to argue against this idea by simply notice the compatibility––perhaps even the unity––of societal intervention and moral expression in Adam Smith, since for him morality involves necessarily a social dimension, and thus what belongs to human nature belongs immediately to the society and thereof its superstructure. Smith, thus considered, has never so straightforwardly been a free-market theorist as the later general image complies. Despite his advocacy for the division of labor as a proponent of social progress, and the size of the market as a constraint of such division, Smith nevertheless has established the normative function of the government to be creating and curating consistently the civil society’s ‘natural liberty’. By expanding on this argument, this essay will conclude that Adam Smith’s position is in fact closer to Polanyi himself then he has imagined, or perhaps has intentionally set up and distanced from.

To illustrate the first point, this essay will examine in detail Polanyi’s consideration of Smith in the Great Transformation, especially it’s comparison with Joseph Townsend who was portrayed by Polanyi as theorizing from the scientific foundation of human nature. To illustrate the second point, this essay will shift to consider the propensity to trade passage in Smith and Polanyi’s comment. And to present our objection to Polanyi on this point, this essay will need a detailed examination of the Wealth of Nations. First we will focus on deriving the notion of natural liberty in Book III, where Smith undertakes to recount the natural progress of opulence. Then, the essay will move on to Book V, where the role of the state is mostly clearly and positively defined, and conclude that even though Smith is arguing against the mercantilists and the physiocrats with their respective intervention into the division of labor-–one focus excessively on the control of the market, the other on the productive part of labor––it nonetheless as well support an artificial environment in which individual actors freely moves around, which is still another intervention. More specifically, even if the military and the administration of justice merely curve out a negative space to ensure the economic activities properly function, other public work, such as infrastructure, education and religious institution, according to Smith, is at the same time indispensable to a commercial society. It is here Smith reveals the noneconomic intervention of the government into civil society he has in mind, and, by such prescriptive vision, manifested Smith as a thinker not of lasseiz-faire; instead, these passages refashion him to favor a government sustainably and positively affords the market which, only perhaps to the eyes of the individuals, offers them their so-called ‘natural’ liberty.

Smith the Humanist Polanyi takes Smith to be the founder of the new science of economics but still subject it to be a mere aspect of the “life of the community.” It is here, claims Polanyi, that the notion of civil society 1 is for the first time ever discovered. Yet he goes on to say that Smith did not, like his followers, insists all the way through the lines of inquiry he has initiated, namely to grant such a sphere an independent existence. It is only later that the now separated field of economics was granted laws of its own and can in turn subject the political: 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. 2 It is indeed, Polanyi claims, Smith who started to treat “material wealth as a separate field of study,” he only did so in a way that still resembles methodologically the traditional understanding of “formulat[ing] the question of wealth” only within “a given political framework.” It is in this sense that 3 Smith has conducted a research that belongs properly to the field of political economy, whose method of inquiry typically subjects the material relations of production, exchange, distribution and consumption from the perspective of political and social structures by which these practices are made possible. Therefore Smith, claims Polanyi, intimates in his work nothing economics which “subject to laws of its own that provide us with a standard of good and evil.” 4 Polanyi then goes on to contend that the reason for such subjection of the economic to the political can be traced back to his system’s “humanistic foundations.” In other words, Polanyi believes 5 Smith’s system of economics assumes an underlying principles regarding man’s place in the world, which, Polayni claims,, opposes Smith’s “naturalist” successors on the side of liberal classical economy, i.e. Townsend, Ricardo, Malthus and Spencer. For these thinkers, the system of economy is founded 6 upon the foundation of human being no different from animals and act in accordance with it’s behavioral inpulses, while Smith, on the other hand, held that “the dignity of man is that of a moral being, who is, as such, a member of the civic order of family, state and “the great Society of GT 116 1 Ibid 2 Ibid 3 Ibid 117 4 Ibid 120 5 Ibid 6 mankind” ”. To Polanyi, then, the so-called ‘humanism’ of Smith is nothing but a moral doctrine 7 8 antithetical to the modern and capitalist worldview composing of a variety of positivism, scientism and naturalism, and here we already see Smith departing from the typical image of a free-market economist.

Unsocial sociability? If such is how Polanyi positions Smith in the history of politico-economic thoughts, how is he to examine the Wealth of Nations in its own terms? This brings us to the second, or namely the political characterization Polanyi made of Smith, wherein the tension bewteen the two thinkers becomes all the more visible. This characterization is best epitomized textually in his critique of Smith’s speculative anthropology of the bartering savage. Here, Polanyi claims, that such conceptual introduction helped Smith furnish the theoretical basis for the later ideology of the self-regulating market. Smith, he says, had suggested that the division of labor depended upon “man’s ‘propensity to barter, truck and exchange one thing for another,’” and from this there emerged the disastrous fiction that human beings are by nature economizing creatures, such that “a host of writers on political economy, social history, political philosophy, and general sociology had followed in Smith’s wake and established his paradigm of the bartering savage as the axiom of their respective sciences”. On this reading, Smith’s mistake lies 9 in having projected backward into human nature what was in fact only the contingent social psychology of commercial modernity, or, in Marx’s word, his bourgeois historical consciousness.

For the text itself it is clear that Smith stresses, as the previous section has established, the individual foundation of a society, namely their moral nature. It is, however, asking an utterly different question when Polanyi, and thinkers alike, to assume the denial in Smith of any form of institutional intermediation providing stability for the market. Smith says that human beings possess a nautral inclination to exchange, yet he does not say that such inclination by itself suffices to produce a market society, nor that economic life can dispense with social, juridical and political forms. That is to say, from a natural propensity to a self-regulating order there remains in-between a critical step that, I argue, there is not textaul evidence for Polanyi to claim Smith has missed in his articulation. The former stands for, just like Rousseau’s noble savage, an anthropological condition of possibility while the latter names a historically pronounced arrangement of institutions. Reading Smith as if he conflates the two is to simply admit that any invocation with regard to nature––human nature in particular––which still is a common practice among theorists and beyond, must amount to a full naturalization of the social.

Indeed, Smith’s own formulation already points away from the image Polanyi attributes to him. The famous passage on truck, barter, and exchange is less of an account of solitary individuals generating society out of pure self-interest than of a specifically human mode of cooperation. What he has in mind, that is to say, is not a contrast between egoism and society, or self-interests versus sympathy as misformulated in the Das Adam Smith Problem, but between man and the other animals: nobody has ever seen “a dog make a fair and deliberate exchange of one bone for another with another dog.” The point of the example, therefore, is not that man is naturally unsocial, but quite the 10 opposite, that man secures what he needs through a distinctively social capacity to address himself to the interests of others. Exchange is in this way always already relational, which presupposes language, reciprocity, recognition, predictability, etc. and thus inseparable from the notion of sociability.

Polanyi’s phrase “bartering savage” hence in fact obscures the continuity, if not identity, Smith originally had moving from the moral man to the societal individual. For Smith nowhere has there a claim of pre-institutional man, simply by virtue of his desire for gain, spontaneously constructs a commercial order. Even if one grants that Smith risks overgeneralization in projecting this propensity too broadly without admitting in this dimension expressions of historical contingencies, it is still quite different from asserting that he derives the totality of economic life from an asocial or self-sufficient human core. Smith’s human as moral beings are already dependent upon others, pursues his ends by Smith, ChII ArtI 7 GT 117 8 Ibid, 45-46 9 Smith I,ii,2 10 addressing their needs and interests to others, within which inscribes an anthropology that is indeed natural, but also not reducible to either scientific or pre-institutional understandings of human beings.

Such an distinction is crucial at least to our argument since Polanyi’s critique depends precisely upon its omission, who reads Smith here as though the appeal to human nature were already an appeal to a completely formalized econoimc logic. Yet of course Smith’s “propensity” functions alternatively in identifying capacities that must still be organized or at least rendered durable through concrete forms of life. The existence of a so-called natural basis for exchange entails the least that it is possible to unfold without mediation; rather it means merely that there is an unalterable foundation for such modes of activity, that it is not entirely constructed or in some sense artificial. For this reason Polanyi’s criticism is solely partially correct: he is right to warn the later thinkers transformed anthropological remark of Smith into a much broader doctrine wherein economic behaviors are transfixed as timeless, universal, and independent upon the social forms it inhabits. But for sure he is wrong to attribute such completed doctrine to Smith himself. The passage on truck, barter, and exchange does not yet identify civil society with the market, nor does it impicates institutions to be secondary or dispensable; it merely localizes, within human nature, one source among many of the reciprocal dealings which social apparatuses later stabilize and extend. To say that exchange has a natural-moral basis does not entail that they are not politically conditioned whatsoever.

System of Natural Liberty If as we have concluded that what Polanyi overlooks is Smith’s tacit inclusion of political artifices together with his appeal to human nature, it then prepares the question of how a natural human propensity becomes institutionally ordered within what Smith will later call the system of natural liberty. If the previous section has shown that the propensity to exchange does not by itslef amount to a self-subsisting market order, the present section must show the converse, namely that for Smith, commercial society becomes possible only under a determinate juridical and political arrangement. The point is nowhere clearer than in Book III and IV of The Wealth of Nations, where Smith’s account of the “natural progress of opulence” and his explicit formulation of the system reveal that what is natural in commertial society is never simply equivalent to that which is unmediated.

Smith begins Book III with the commerce between country and town. While the country provides subsistence from the produce of the land, the town affords conveniency and luxury, and wherefore the former must be prior to the latter. Since subsistence is always the first priority, the 11 order of things will always favor agriculture as the “natural inclinations of man.” Among the 12 professions in the town, however, there is further differentiation based on the security of the capital. The tripartite division of price of commodities into rent, wages and profits was corresponded to three classes of profession at the end of Book I, and agriculture is preferred to manufactures for it is more 13 secured is the same reason why manufactures are preferred to foreign commerce. It is for this reason, 14 namely the levels of security of the capital, that there is an order of establishment of country and town, such that land has to be cultivated before manufacturing, which is in turn naturally developed before activities of foreign commerce.

Smith’s language here is unmistakably natural, and it appears, at first glance, to confirm Polanyi’s suspicion that Smith derives economic order directly from a quasi-organic tendency of human life. Yet a more comprehensive reading of the rest of the book will clarify how contingent and even fragile this natural order is. Indeed, the entire argument of Book III is afforded by the fact that Europe historically did not follow this natural order. The economic development of modern Europe is, according to Smith, a record of deviation, interruption and even inversion of such orders. Great proprietors, feudal dependence, primogeniture, entail, chartered towns, monopoly and mercantile policies all interfere with the natural progress by which agriculture would ordinarily ground the development of the rest. In this way Book III is read as a story of institutional obstruction, and Smith’s history of opulence is thus Smith, 402 11 Ibid 12 Ibid, 276 13 Ibid, 405 14 already enough to complicate Polanyi’s reading since if Smith truly believes in the vacuum entailment of the natural propensity to exchange to a self-sustaining market society, then there would be no need to take great pain delineating the juridical and political arrangement, both historical and prescriptive as later detailed in Book V.

Even before Book V we can see in Book IV that Smith names the arrangement he favors. “All systems either of preference or of restraint,” he writes, once “completely taken away,” allow “the obvious and simple system of natural liberty” to establish itself of its own accord.” Although it’s 15 often cited as his defence for pure laissez-faire, it is still unclear what precisely does Smith by natural liberty appears “of its own accord,” and it does not seem to necessarily exclude the positive step of removing systems of preference and restraint. That is to say, the liberty here does not have to be prior and could be read as the result of certain kinds of political action. And the state must first dismantle the legal and institutional privileges which deform the flows of capital on the one hand and labor on the other. Natural liberty is therefore not the absence but productive result of institutional interventions in removing impediments. And the descretion of what precisely are such impediments–– or what is exactly ‘natural’––is a concrete consideration made only almost ‘invisibly’ by the hand of the political.

As we have seen, Smith has really no claim with regard to the absence of political intervention in defining the so-called natural liberty, and Polanyi’s interpretation, therefore, begins to reverse itself. The very concept that seems to make Smith into a prophet of the self-regulating market in fact reveals how deeply his economics remains juridical and political. The market, for Smith, is never simply given, and it must be continuously curated and protected from feudal survivals, mercantile monopolies, etc. The system itself is thus by no means spontaneous by individual actors but a politically achieved condition in which each may pursue their respective ends, and the ‘natural order’ is by precisely the result of successful institutional design.

Conclusion

Adam Smith and his Wealth of Nations has all too often been introduced synonymously with free market capitalism and deregulation. The preceding argument has sought to unsettle that familiar image by passing through Polanyi, but also by refusing the simplification through which Polanyi himself sometimes reads Smith. For Polanyi is right to insist that Smith does not yet belong wholly to the later naturalistic and economistic worldview of the nineteenth century. Smith still begins from man as a moral being, as a member of family, state, and the wider order of society, and in this sense his political economy remains grounded in a humanist understanding of social life rather than a biological one. Yet Polanyi is wrong to conclude from Smith’s remarks on the propensity to truck, barter, and exchange that Smith thereby imagines economic life as requiring no institutional mediation. What Smith naturalizes is not the fully formed market, but only one dimension of human sociability. The market itself remains, for him, a politically and juridically conditioned order.

Such problematization motivates further investigation into Smith’s doctrine of natural liberty, with which we concluded that Smith’s rejection of mercantilism and physiocracy does not do away altogether with governmental intervention, but simply preferenced deformation of those more general and socially beneficial movement of commerce. Natural liberty is therefore not a pre-political condition, nor the spontaneous self-organization of isolated individuals, but a politically secured order in which artificial impediments have been removed and general rules are allowed to operate by the state, whose task is to maintain the conditions under which civil society may develop without commanding directly branches of economic life according to sectarian doctrines.

It is by this observation that Smith can appear in a rather different light, neither as the naive ideologue of self-regulating market nor the liberal adversary against whom critical thought must define itself. He is instead a thinker of political economy most properly conceived, for whom wealth, exchange, and commerce, as confirmed by the often ignored Book V, remain inseparable from law, institutions and moral forms of life. If the market appears “natural” it is only because the successfully produced structure by political mediation has retroactively made intelligible the whole economic Ibid, IV.ix.51 15 framework of operation, and within which the particular activities which, together with the system, act as if following eternal and univeral laws.

The distance between Smith and Polanyi, then, is smaller than the original polemic of Polanyi permits, for Polanyi’s own ingenious insight––that economy is never detachable from society, that the market is never simply self-grounding, etc.––finds, perhaps unexpectedly, a precursor in Adam Smith the prophet of capitalism. To rediscover this Smith corrects not merely a philological misunderstanding but it also reopen the problematics of political economy against both liberal genealogization on the ond hand and left-leaning critical dismisal on the other. Smith’s significance, thus, lies not in having uncovered that society should submit to the market, but in admitting, however primitively, the ex nihilo affordance of moral as well as institutional order to the market and commerce which retroactively appears resembling at the same time the determination and purposivelessness of our natural universe.