Web Assignment 5: Ben Peacock: Polanyi's Well-Governed Market

This page is for Ben Peacock's students.

• The page for Varanya Chaubey's students is here.
• The page for Kristen Durham's students is here.

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Karl Polanyi's Great Transformation argues that the market economy achives productive efficiency by treating as commodities things--land and labor, chiefly--that it is politically impossible to treat as commodities. This conflict between economic logic and political necessity is, in Polanyi's view, the thing that destroyed the pre-World War I liberal world and led to the rise of socialism and fascism as alternatives.

Write a comment of at least 200 words on what you think is the best way to build on Polanyi's insights to manage the border where economic logic meets political objectives. Contribute to the discussion that is ongoing--that is, react and respond to not just Polanyi but, to the extent it is appropriate, the earlier posters and commenters on the webpage.

Do this by 5 PM on October 2.

Comments

[Karina Tregub]

For Karl Polanyi, the First World War proved to uncover the greatest disability of the market economy: it was incapable of salvaging decapitated economies during total international war, and completely unreliable in providing salvation to the disillusioned individuals of these suffering nations. The end of the Great War also meant the end of the “liberal creed,” as Polanyi terms it in The Great Transformation, where he provides a look into the international political and ideological framework that surfaced after the great conflict, namely social democracy, socialism, and fascism.

Looking at the side of economic logic, Karl Polanyi posits that the conception of one’s self-interest depends upon the context of life in which that person lives, and that economic rationality is the function of one’s socio-economic context: “Instead of economy being embedded in social relations, social relations are embedded in the economic system” (60). Therefore, Polanyi believed that a self-regulating market cannot exist because this market assumes that everything has to be commodified. The attempt to commodify labor and land, in Polanyi’s view, was a politically-organized development that led to revolution, or the “double movement.” The 1914-45 period and the crisis of liberal order were Polanyi’s chief concerns. He believed it was through a particular advancement of time and space that the market economy gave rise to the problems and strains that became increasingly confrontational at the turn of the 20th century. Communism and fascism, which everyone after WWII denounced and feared, were actual reactions against the problems that liberalism created, and these reactions later led to disruptions of capitalism itself. With the new political objectives of socialism and fascism arising after WWI, each society was building upon its own economic rationality, depending on the socio-political context that was developing within the state.

In order to manage this border where economic rationality and political objectives meet, Polanyi wanted a multi-lateral reconstruction of the international system, or an alternative globalization that would be political, not economic, and would result in a multinational sovereignty. This could almost take on the shape of a global European Union, but involving all states, not just European ones. In order to mitigate the dysfunctional reconstruction policies after WWI that were meant to stabilize Europe, but in fact destabilized the international system, Polanyi felt that an internationalist response was appropriate, in order to coordinate the processes of integration into the world system, and alleviate some of the socio-political and economic tensions that liberalism had generated.

[Ziwei Hu]

According to Polanyi, Adam Smith’s conception of man’s “propensity to barter, truck, and exchange is almost entirely apocryphal.” He observes that the history of mankind provides little support for such a notion, and that prior to the creation of the self-regulating market, people relied on the systems of reciprocity, householding, and redistribution in order to exchange goods. In this system, “the orderly production and distribution of goods was secured through a great variety of individual motives disciplined by general principles of behavior.” Thus, the tension between economic logic and political necessity was not present in this pre-market economy, but only emerged after the creation of the self-regulating market.

The self-regulating market, in which production and distribution are driven by profits, produced a great transformation in society. Prior to the creation of the self-regulating market, economics was subordinate to other forces in society, such as custom, law and religion. The rise of the self-regulating market turned this relationship on its head, and “human society [became] an accessory of the economic system.” However, Polanyi believed that the self-regulating market was inherently dehumanizing and unsustainable -- that it “could not exist for any length of time without annihilating the human and natural substance of society.” Society would always attempt to protect itself from the ravages of the self-regulating market; Polanyi called this ongoing friction between the self-regulating market and society the “double movement.”

Polanyi provides the example of the Enclosure movement in England to illustrate this point. The forcible dislocation of the poor peasants was a direct consequence of the landowners seeking to maximize their profit at any expense. He writes that the Tudor government intervened and mitigated the problem by “regulating the course of change so that it became bearable and its effects could be canalized into less destructive avenues.” I think that Polanyi sees a clear and necessary role for the government in preventing the forces of the self-regulating economy from destroying human society. Without government intervention and the creation of protective laws, the drive for higher profits and lower prices will result the powerful exploiting the powerless, and immense suffering and poverty.

[Tomas Salcedo]

Polanyi alludes to the intersection between political and economic logic in regards to the the "fictitious" commodities of Land, Labor and Money. Essentially, these cannot in strict terms be considered as such, because they are not produced with the aim of subsequent sale, rather they are elements essential to production of goods and services within an economy. The political inability to treat such goods as commodities, especially labor, lies in the fact that labor itself is merely another name for human livelihood. For such a thing to operate as a commodity, and hence preclude certain members of society by the mere interaction of supply and demand from livelihood itself would imply a moral dearth that within a liberal democracy must be dealt with by political means.
It is there, and in other aspects of the economy in which government intervention becomes necessary in order to achieve a harmonious society. In chapters five and six, Polanyi indicates that markets, and the societies in which they operate are symbiotic. A notion further empathized by my own belief that the economy should exist at the service of society and not the other way around. That is, a healthy and growing economy should imply that the members of the corresponding society enjoy a rising standard of living and general prosperity. Because the society itself contains essential elements for the healthy production of goods and services, and the healthy production of goods and services is healthy for society, it is natural and in fact moral the the government somehow step in to ensure the harmonious interaction between the two. As Polanyi points out, both with the examples of the English Enclosure movement, as well as the development of mercantilism, autocratic governments may intervene in ways that are counterproductive to these ends. However, with the political disposition of today's liberal democracies, and with the further liberalization of these, the proper political incentives exist to induce the government to engage in such intervention in the interest of the majority of citizens, hence helping create a society whose prosperity is defined, and not confined by the operation of the market.

[Noah Castro]

My take on Polanyi's argument is similar to that of Ziwei. He says that a market society is one in which the individual is forced to pursue their own personal gain because within such a system society in general is subordinate to the market mechanisms of the economy. By prohibiting regulations of the market, labor, land, and money become fictional commodities to be bought and sold as components of production. According to Polanyi these tendencies of the market economy violate the natural state of human society and as such can only be sustained for short periods of time with the support of interventionist policies every now and then, but will ultimately culminate in the collapse of the system.

Labor, land, and money cannot be allowed to take the form of commodities, they must be regulated by the government and in so doing the economy will be subordinated to society subsequently eliminating personal gain as the predominant social incentive. Polanyi thought he was living in the apex of a social revolution: “the market system will no longer be self regulating, even in principle, since it will not comprise labor, land, and money”. He may have been right if it had not been for the political circumstances of the cold war, which he foreshadowed somewhat when he predicted the rise of various new market systems. I think he concentrated too much on the nature of economic affects on society and not enough on how political power has evolved to manipulate society. The fundamental problem with Polanyis argument is that he never addresses the question of whether or not man is inherently selfish.

[Eric Silverman]

While I strongly agree with the previous two posts, I think it is important to highlight the key misinterpretation that is implied in the self-regulating economy. Adam Smith coined the phrase, “the invisible hand”, but not once did he ever say, “the invisible hand of the market.” There have been volumes of books written as to what else that phrase could entail. But, that was the monumental inference that Liberals of the 19th century assumed as dogma that allowed them to believe that land, money, and labor could be treated as though they are commodities that the universal “rules of the market” will self-regulate. In effect, this treats any context in which human beings live or dynamic interest of an individual as a dangerous variation from this religious dogma.
This dichotomy is particularly hazardous when it is introduced in almost any form of a representative polity. How well the free market functions is contingent upon the whims of society. For instance, given Malthusian ideology, which had a very influence at the time, the welfare state (represented mainly by the Poor Laws) needed to be eliminated. The idea being, that if you aid the lower classes with some form of institutionalized charity, you effectively eliminate any incentive for them to provide for themselves and thus enter the free market. When this kind of logic is presented in front of a population dominated by the poor, its implementation falls short. The ultimate goal of the economy is stagnated by the actions of effective democracy and visa versa. Some could argue that there needed to be a way to monopolize the interests of the state and the economy; which, as I see it, was the means by which fascism and socialism captured many hearts and minds.
I think that at the heart of his argument is an extremely important moral assertion. That it should not be the goal of the economy to maximize wealth, but rather to foster peace. The rules and regulation of the economy should be written as such to facilitate freedom, no matter what the varying structures of that economy may be. In that way, the function of the polity and the economy should mirror one another into a future of mutual, dynamic progression.

[Norris Tran Duc]

What I understood from Polanyi was that no society could live for a substantial period of time without an economy of some sort, and no economy, previous to the modern one of his time, was ever controlled by a market system. Just like Ziwei said, prior to the self-regulating market, the economy was controlled by culture, laws, and religion, and even competitive self-interest in a world focused on the balance of power. Yet Polanyi depicts the rise and evolution of the self-regulating market where man’s economy is interconnected with his social relationships.

The “fictitious” concepts of land, labor, and capital are but terms that, if allowed to control and be the sole director of the fate of human beings would result in the “demolition of society.” (76) Polanyi seems to argue that the development of the modern state, in response to the growing communist and fascist ideologies in his contemporary time, is concurrent with the development of the modern market. Throughout history, the structure of a state and its human interest is interrelated and in symbiosis with the economic market. That is where the economic logic and political objectives coincide.

The Great Transformation lies in the wake of this sudden change and evolution of state and market, where all the preconceived systems in place prior to the onset of the self-regulating market are now forevermore obsolete. Yet even with this great change, the self-regulating market was unsustainable and could lead to a devastating blow on the basic social order and human and moral substance of society. Hence, the deus ex machina of state intervention could provide a balance.

Furthermore, Polanyi attacks the concept of the “laissez-faire” economy and states that it wasn’t as natural as it pretended to be since free markets could have never existed by simply letting things take their natural course. If anything, “laissez-faire economy was the product of deliberate State action, subsequent restrictions on liassez-faire started in a spontaneous way.” (147) There is a “double movement” to counterbalance the market society, where social protectionism is adopted through state intervention as a natural response to the unrestrained and possibly destructive free market.

Overall, I also agree with Polanyi that economic and social problems are inherently linked, because one cannot survive without the other. For example, a capitalist economy could only stem from a strong state that would change previously adhered to social structures, and conversely, a strong state would grow stronger on a purely materialistic and economic basis with a capitalist economy. In a more modern perspective, one could look at how a push towards green technology and legislation affects the “freedom” of the market economy.

[Evan Fleming]

I agree with the previous post in that one of the critical components of Polanyi’s argument is that the goal of the economy is not to create and maximize wealth, but rather to institute a peaceful framework in which society can effectively work to the benefit of all participating in the market economy. Looking at this concept from a historical perspective we can refer to Polanyi’s period of Haute Finance during the 100 years of peace in which an independent economic system was put in place which ensured that all political systems had equal opportunity to achieve gains. The fundamental premise was that those that acted in peace not hostility would be able to take full advantage of this international economic mechanism. The supreme effectiveness in Haute Finance in maintaining a balance that urged economic prowess but provided means for political progress as well, took place only because the economic and political landscape of the Concert of Europe and the stable Balance of Power that existed in the 19th century allowed it to.

It is a fair argument that establishing a mechanism such as haute finance to manage conflict between economic logic and political necessity would be somewhat idealistic in a post world war framework. However, by applying the fundamental aspects of this mechanism it would discourage the need for socialist or fascist tendencies in that its independence of government allows it to be molded by social dynamics and freely function to serve the needs of the individual and of the political-economic system.

I think that by emphasizing the gains that were earned in the peaceful market environment that was created in the 19th century, Polanyi is arguing that personal gains from a social and economic perspective is not a bad thing. Regulation and decommidification of land, labor, and money in the market economy essentially removes all advantages of a commercial society in that the buying and selling of goods becomes less natural and therefore superficially enforced by social or political means. Land, labor, and money are the elements of industry and are the drivers of economic progress. When wealth is created in the trade of these goods in a manner that takes away the possibility for peace and fairness in the market, the self-regulating market becomes ruled out and fascism and socialism ideologies are adopted to avoid unfair wealth distribution and social inequality

[Irina Zeylikovich]

Polanyi’s writing proved to be a really interesting foil to Adam Smith’s Wealth of Nations. From the very beginning, Polanyi takes a stance diametrically opposed to Smith’s classical view that the self-regulating market was the ‘natural’ method the market operated in. Rather, Polanyi argues that a self-regulating market “was not the result of any inherent tendency of markets”(57) – instead it was the result of “utopian endeavors of economic liberalism”(29) fueled by the sole motive of gain.

This proves to be very important when Polanyi digs into political interaction with the market. What I took away from the concluding chapters of the book was the sense that political intervention in the economy did not constitute a lack of freedom for the economy to function as it ‘naturally’ should, since Polanyi disputed Smith’s invisible hand anyway. It was an interesting premise, since I think the argument is still pertinent today: people still see government intervention in the economy as stifling natural market tendencies. Polanyi, it seems, thought intervention would result in the “beginning of an era of unprecedented freedom.”(265) Thus the border between economic logic and political objective becomes key, as he argues some aspects need to be taken away from the market. One such aspect is labor, and moving it out of the market would result in the working hours, wages, and conditions being determined outside the market, or in the area of politics.

[Susanna Babos]

In “The Great Transformation”, Polanyi argues that a modern state’s social development is closely related and linked to the market’s development (i.e. economics). He demonstrates the fundamentals of this idea of interrelation by arguing that the creation of a competitive capitalist market needed state support, while at the same time, the creation of this market resulted in destroying the existing social orders. However, Polanyi calls this transformation great, yet he also argues that market society could be too destructive and therefore bad for those who live in it.

Moreover, as Norris has said it earlier, he attacks “laissez-faire”ideology, because it was not as spontaneous as it has been presented in the past, but it was more a planned market ideology. Polanyi actually attacks “laissez-faire” but the does not contradict the fact that free markets resulted in “unheard of material wealth”; however, he also adds that the free market “ subordinates the substance of society itself to the laws of the market”, which results in social dislocation, meaning that society will attempt to protect itself spontaneously. Therefore, society’s natural response for a market society is social protectionism, which is not planned, unlike “laissez-faire” is, but spontaneous, and this, according to Polanyi, is called the double-movement (that was also mentioned by Norris and several others).

In my opinion, Polanyi did not see economics as something separate from everything else; I think he actually saw economics and social problems as closely linked together. His legacy lies precisely in the notion of relatedness: Polanyi created a cultural approach to economics, which focused on how economics is embedded in culture and society.

[Christina J. Adranly]

One of Polanyi’s main arguments is land and labor may not be commodified in the political sphere. That historically liberal economic thought has assumed this tenet of economic logic, and that the market economy succeeds due to the “productive efficiency”, is what he argues ultimately lead to the breakdown of liberalism and the need for revolution. As Ziwei accurately points out, land and labor cannot be considered commodities because they are not expressly produced for trade, rather for the facilitation of production of other commodities. So the question is: Does economy exist to serve society? Or is all of this subordinate to politics?

I agree wholeheartedly with Polanyi when he argues that the emergence of a liberal democracy necessarily coincides with the simultaneous (or consequent) emergence of the liberal economic system. It is necessary to establish the culture of democracy within society so that citizens may fully and efficiently participate in the market economy, while maintaining economic life at the forefront. I personally am of the opinion that the government exists economically to oversee fair competition and a reasonable distribution of wealth, and thus to aid in perpetuating economic growth. Economic growth encourages increased innovation, which in turn increases standard of living of its citizens.