Academic journal article
By Davis, Ann
Journal of Economic Issues , Vol. 42, No. 4
Indeed, in a sense we rely on governmental management and policing of our most-used system of resource management, namely, private property; we might think of the private property regime, taken as a whole, as a 'public property' owned and managed by governmental bodies.
Carol M. Rose (Property and Persuasion 1994, 109)
This paper will contrast the work of Douglass North and Karl Polanyi, both important institutionalists in the twentieth century, but with very different views regarding the essential characteristics of a market economy. For North, protection of individual private property is a necessary precondition, along with Constitutional commitment to an autonomous market and private rights. For Polanyi, there is an impossible separation between markets and politics. Further, North did not specify which type of property would be protected, while Polanyi enumerated land, labor, and capital, all "fictional" commodities, in his view.
To compare their views, I have chosen the context of financial institutions, a key aspect of market economies, with a long history of institutional development. While North pays less explicit attention to financial institutions, probably due to his more neoclassical orientation, he nonetheless makes trenchant observations that can be culled from his various historical works. Polanyi pays particular attention to the gold standard, but also observes the role of central banks in the management of flat currency.
Ostensibly, money is a clear example of the separation of public and private property. On the one hand, the miser's gold hoard is clearly his own private property. On the other hand, nonetheless, each gold coin is stamped with the insignia of the sovereign nation, an indication of its public nature. Based on a close reading of North and Polanyi, the position presented here is that money represents an inherently political collaboration between "private" wealth holders and the state, rendering such an unambiguous dividing line between public and private property untenable.
In particular, central banks form a core aspect of this examination, for several reasons. First, the organization of central banks in one country followed experiences and lessons learned in another. For example, Alexander Hamilton studied the Bank of England, in his role as the first Secretary of the Treasury in the United States, and the Bank of England in turn, was based on the example of the Bank of Amsterdam. Second, the role of the government and public finance is demonstrable in the operation of central banks and in the formation of public and private financial markets historically. Third, public debt, based on projected tax revenue, was an important private financial asset, with the government thereby playing a significant role in intertemporal exchange. Finally, this central role of the government as a financial intermediary places a public entity at the center of private financial markets, rendering the public/private divide less definitive than North would presume.
While private wealth holders would then be interested in monitoring the state budget, as North argues, this potential alliance of the state and wealth holders may place other parties in a position of reduced influence. That is, North's view of the self-enforcing nature of private property and the government finance may yield an alliance that would place Polanyi's "society" in a subordinate position. Society at large may not benefit as much by the process of monetization and the extension of markets, that is "growth," as much as wealth holders and the government. In fact, the historical record of financial institutions in the United States is replete with examples of such resistance.
North's evolving position regarding the role of wealth holders in representative government essentially concedes the importance of their political role. Ultimately, Polanyi's position regarding the impossible separation of markets and politics gains reinforcement from this unlikely quarter. …