Web Assignment 5: Kristen Durham: Polanyi's Well-Governed Market

This page is for Kristen Durham's students.

• The page for Ben Peacock's students is here.
• The page for Varanya Chaubey'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

[Roushani Mansoor]

For Karl Polanyi, the “great transformation” in the 20th century was this world-wide movement away from semi-isolationist, laissez-faire mentality to a controlled economic and political state. The reason why socialism and fascism flourished after the great international depression and World War I was that individuals, and governments for that matter, did not trust the free market anymore, seeing the kind of destruction its total failure can cause. Thus, nations turned, wrongly in Polanyi’s mind, to controlled states of Socialism and Fascism where the government dictated the main mechanisms of the state’s economy.
The primary catalyst for this great transformation came with the incorporation of foreign and international affairs in the governmental doctrine of almost every fairly industrialized nation. Becoming involved in a world market economy sounds reasonable for a nation and usually produces excellent gains in material wealth and well-being. However, the political issues and conflicts that ensue outweigh the economic benefits and lead to catastrophes such as the world-wide depression of the 1930s and both world wars. Polanyi states in his opening chapter “international finance had to cope with the conflicting ambitions and intrigues of the great and small powers; its plans were thwarted by diplomatic maneuvers, its long-term investments jeopardized, its constructive efforts hampered by political sabotage and backstairs obstruction.” I think the one of the possible solutions for Polanyi is for the world to return to complete laissez-faire, to the point where politics do not interfere with the market system.
The beginning of Polanyi’s book set the stage for the political and economic separation he advocates. Of the four institutions 19th century civilization rested on- the international gold standard, self-regulating market, the liberal state and the balance-of-power system- two were political, two economic. Once the gold standard collapsed, Polanyi argues that the three other institutions were abandoned in an effort to save the gold standard. It was because the two economic institutions became politicized that they were not able to act in their natural tendencies leading to a more disastrous decline than anyone could have envisioned instead of eventually correcting themselves. Best said, “a market economy is an economic system controlled, regulated and directed by markets alone...An economy of this kind derives from the expectation that human beings behave in such a way as to achieve maximum money gains” (68). Polanyi understood the human tendency to maximize income, but what he argued against was the tendency of governments to interfere on the basis of national interest. “Neither must there be any interference with the adjustment of prices to changed market conditions (69)”- such as political interference.
All in all, I believe the only way to remedy Polanyi’s concerns is to have the world return to its industrialist state where the international economy was not developed yet. In this time frame, nations were much more insular and concerned with developing their own economies than politically reacting to changes in the world marketplace. The invisible mechanisms of the market were able to perform without hindrances from governmental regulations. Politics minimized the free market’s effectiveness once trade became an integral part of the economy and interactions between nations increased leading to undesired consequences.

[Ellen Dobie]

Karl Polanyi’s The Great Transformation of 1944 provides a substantive critique of modern market society based in economic history and social theory. Polanyi seeks to demonstrate how humans have been left out of the equation of market liberalism, and how, ever since the very creation of the self-regulated markets, history has been defined by a Double Movement comprised of social protectionist movements counteracting attempts at market liberalization.

I disagree with Roushani that "one of the possible solutions for Polanyi is for the world to return to complete laissez-faire, to the point where politics do not interere with the market system." In fact, this is something that Polanyi argues against. Polanyi begins his novel witha heavy romanticization of the past, focusing on pre-capitalist societies in which comunities oeprated on values of reciprocity and redistribution. Fast-forward many centuries to pre-industrialized England, when English tinkers create the concept of market liberalism revolving around the core belief that human society should be subordinated to self-regulated markets. And with the creation of the Gold Standard, this market mentality becomes the chief orgnizing principle of the world economy.

For here springs Polanyi's concept of embededdness: "no less than the running of society as an adjunct to the market" (60). With this "great transformation," Polanyi envisions a stark utopia in which human beings and the environment are subjected to the market mechanism. As such, land, labor and money—elements normally taken as sacred components of human society—are commoditized and put on market. As these are entities not originally produced for market-sale, Polanyi terms them ‘fictitious commodities’ and views their commoditization as the tearing asunder of the primary threads of society.

Polanyi's analysis of the creation of self-regulating markets does not end with the destructive elements of market liberalization. Instead, the unfaltering values of reciprocity and redistribution within human nature generate a "Double Movement," in which society at all levels fights against movements towards market liberalization, chiefly in an effort to preserve fictitious commodities. Human inclinations of protecting community and preserving society create an inevitable and concerted response on behalf of society. Embededdness propels society to fight against disintegration of humanity and nature.

That said, there are several ways to manage the border where economic logic meets political objectives. Current-day Double Movements, in which the struggle between social protectionism and market liberalization, abound: activist protests that shut down two consecutive Doha rounds of the WTO and the fair trade movement are two examples. In Polanyi's final magestic chapter, he envisions a complex society in which a social democratic government has a strong hand in control of the economy. This vision of more control creating more justice and ultimately more freedom could be translated into reality through a government that works towards socially-just economic policies. This would not take the form of free-trade policies, but instead would probably be heavy in public works, social-assistance and would prioritize equity.

A weakness in Polanyi's argument is his universalistic and unilinear vision of the historic progress. While Polanyi does allow for various combinations of market liberalization and social protection at different points of history, his argument still does not offer much flexibility or variation. For example, just a few decades after the publication of The Great Transformation, the Cold War erupted--an event not at all foreseen by Polanyi. Thus, while his theories are able to explain may relationships within society (market and state, social movements nd market liberalization movements, self-regulation and increased human or environmental degradation) there are still some holes that cannot be filled because of lack of flexibility in his argument.

[Glory Liu]

I am very excited to be contributing to this discussion today because Polanyi’s Great Transformation is one of the seminal works on Liberalism in the 19th and 20th centuries, and one that I’ve been looking at in different classes this semester. My perspectives on his works has also been influenced by material I’ve been studying in my class on Global Poverty, where I see Polanyi’s argument as a strong reaction to the failures of Classical Liberalism, and also as a warning to the coming movement of Neoliberalism in the 20th and possibly even the 21st century.

I agree with Ellen that Polanyi views the successes of a market economy as a “stark utopia.” This is the primary reason why I think that Polanyi does NOT want to return to the era of complete laissez-faire (sorry Roushani). For despite how much the market can supply, I don’t think the Classical economists or philosophers envisioned what the market couldn’t do—they could not (or maybe they did not) want to envision market failures. The greatest problem with the idea of a free market economy and society is that people always think about the great economic growth, but forget about the fact that markets also create poverty and inequality. I think Polanyi would term poverty and inquality “non-commodities” Poverty and inequality are not “commodities,” that is, they are not objects for sale on the market, and hence, cannot be addressed by the market. Clearly, this is what Polanyi is trying to avoid—the degradation of human society. He has already lamented how progress is a double-edged sword: during the Industrial Revolution in England, economic improvement was achieved at the cost of human societal dislocation.

For these reasons, I think Polanyi would not seek to return to the era of laissez-faire, but to the height of the era of haute finance. In this era, the haute financiers of England, France, Germany all served as the liaisons between political and economic spheres, inevitably creating the ideal balance between peace and economic prosperity. We might also call this “dollar diplomacy.” However, I think that term might be a little too strong. The United States could be seen as a “dollar diplomat,” but there is a fine line between diplomacy and economic neoimperialism! As Polanyi continues, the peaceful era of haute finance slowly crumbled as the balance of power began to swing and nations became more competitive for colonial acquisitions. Could this be Polanyi’s warning to great powers of today, that when political and economic motivations are no longer in harmony, political and economic peace and prosperity are at risk?

I think Ellen’s comment about today’s double-sided movements is particularly interesting, especially because organizations such as the IMF, WTO, and World Bank were created to be intermediary bodies to control markets and regulate international trade and prevent worldwide economic crises from occurring. I need not go into the details of how undemocratic the processes of these organizations are, but the fact is that ordinary citizens need to act as Polanyi’s haute financiers- they need to be aware of the dilemma between market liberty and human liberty. What are we willing to do for our material gain as a nation, at the cost of human freedom—at home or abroad? The problem is, which I don’t think Polanyi addressed, is that how much power do we have as ordinary citizens? No matter how hard we try to be a good citizen, how willing are the people in charge to pursue socially just policies? We may seek to end government subsidies of US grains and dairy products because it is the more economically efficient and socially just thing to do for starving African farmers, but how willing will the government be to pursue this policy? This, I feel, is Polanyi’s problem: how to define where one freedom ends (economic) and another begins (human).

[Yelena Bakman]

Starting out his book, Polanyi is amazed how the balance of power lasted for world peace between the big powers of about one hundred years. He takes note of the fact that it took much regulation between the different nations and constant collaboration and calibration. He also notes the importance of the Concert of Europe and how the participation of the powers, and, almost even more importantly, their willingness to put arms behind their claims and “requests.” He maintains that life before WWI depended on four ideals: the balance of power, as aforementioned, the international gold standard, a self regulating market that produced a huge amount of material wealth and lastly was the liberal state. He argues that when two of these fell, mainly the gold standard followed swiftly by the balance of power, the rest were destined to fall as was the peace that the four had created. He does concede that there were small wars, but because they were contained by the support of another power for or against the first power, they did not result in as much damage as one would consider crippling.

For him, it seems that the change in both an economics factor and a political factor working together threw off the balance that was before. By taking themselves off the gold standard, countries either upped their position or lowered it in comparison to others and this affected exchange rates and as a result export/import costs. In turn, international trading now had a different pattern of who traded to whom. This would upset the balance of power. The gold standard is an example where one must combine both economic logic and political necessity.

As for treating labor, land and Polanyi goes as far as money, being treated as commodities, makes perfect sense in the sense of economics, but our world is made of people and therefore we have to figure out how to blend politics and economics: reality and the ideal. He writes, “To include them [labor and land] in the market mechanism means to subordinate the substance of society itself to the laws of the market“(p71). To some degree we have to do this since we do have to trade and we do have to measure the strength of our economy. To do so, we need to consider the health of labor, the usage of land as well as supply of money. I believe that in study, it is best to look more toward the ideal, i.e. the economical logic while when one is trying to figure out the next move for the government to take, one should learn from what the ideal teaches and then modify it to be an accurate description of reality. In analysis of the ideal, we can see the ways to bring reality toward it. Without having a goal for reality to come to, one cannot hope to have progress; progress in any sense requires a destination—for us that destination can be economics logic.

Roushani writes, “The primary catalyst for this great transformation came with the incorporation of foreign and international affairs in the governmental doctrine of almost every fairly industrialized nation.” This had existed previously. People were trading internationally before nations were in existence and domestic governments dealt with it well before and after. I would instead argue that the main catalyst for the transformation was the abolishment of the gold standard. With this, we see more volatile currencies and as a result, trading is not as consistent and interdependence is no longer as strong as it was. Furthermore, I agree with Ellen in the fact that Polanyi had a very narrow view of history. He did not consider the social programs that were being put in place in England or the emergence of Unions in the US. These institutions add more factors and dimensions to the cloth of society. Unions especially help bring the necessities of reality with in the theoretical models of economists. This is an aid in reconciliation of political necessity and economic logic.

[Carolina Merizalde]

In "The Great Transformation", Polanyi exposes the intrinsic link between the economic and social aspects of society. He elucidates that the rise of new political ideologies is the result of the failure of the economic structure of society added to the social demands that called for greater State interference. As he points out: "workers agitated against unemployment, capitalists against a fragile banking system, and farmers against falling prices" (59). When land owners, merchants, and bankers saw their interests at stake due to the fluctuations in the trading sector, they united with workers to obtain protection; in turn, their success in achieving greater protection led to the collapse of the self-regulated market. In addition, Europe’s balance of power was ended with the outbreak of WWI. These conditions prompted the reestablishment of the gold standard to restore the system, but it only provoked the destruction of the international financial system.
Furthermore, Polanyi’s historical assessment determines that exchange was dictated by social needs rather than profit motivation because the organization of production and distribution in several societies has been founded on social relationships and obligations: reciprocity (ex. tribal societies) and redistributive systems (ex. Soviet Union). He alleges that “the economic system is, in effect, a mere function of social organization” (49). These relationships and social obligations is what held the societal framework together.
Ideally, just as Ellen, I would like to see a government working towards “socially-just economic policies, ”yet Glory brings up a very valid concern of how “willing are the people in charge to pursue such policies?” Therefore, in my point of view, Polanyi denies in his argument the natural rights of people to democracy, freedom and choice which are the force that could unite the economic and political forces into congruent policies. I believe that societies can indeed act as voluntary and spontaneous institutions; but I also acknowledge the need of governmental intervention at the macroeconomic level when needed. Thus, fascism and socialism are not necessarily the answer, the government and the people can work with one another to attain economic improvements and progress. I agree with Yelena’s proposal of Unions as one of the counterbalancing players and I would like to contribute to her suggestion by mentioning the necessity to reach a balance between the power given to the people and to the government.
In a fascist regime, the actions of the leader may not be a true representation of the needs and desires of the population as a whole; in like manner, compliance to the demands and pressure of unions/market may bring about short-term solutions, but not long-term benefits. Consequently, the best way to regulate the economy and integrate it to the politics of a country is through a dialogue between its different segments, it is also essential to encourage greater involvement and participation on the side of the people so that the power and wealth is not just accumulated by elitist groups. Moreover, the past can be taken as reference but we cannot use it as the ultimate path to follow in the future because certain regulations could work at a given time and place, but societies keep on evolving and those same regulations may not be appropriate at a different time and place. Hence, society ought to utilize its institutions in collaboration with the government to obtain efficient changes encompassing everyone’s needs.

[Edward Taylor]

Karl Polanyi, in his work The Great Transformation, attempts to show that the disjointed relationship between economic logic and political necessity is the reason for the post WWI destruction of the liberal world and the increase in fascism and socialism. Prior posts, particularly Roushani’s and Carolina’s, have shown Polanyi’s argument that civilization in the nineteenth century rested upon four main institutions: 1) an international gold standard 2) a self-regulating market 3) a liberal state 4) a balance of power system. Once the international gold standard fell, stability for the other 3 institutions became questionable. With regards to Roushani’s argument, it is mentioned that Polanyi understood human nature to maximize profit and that a return to an industrialist state where the international economy was not yet developed is a valuable solution to the world’s problems in the 20th century. However I would have to counter this argument. First, I believe Polanyi was not actually saying that people are necessarily motivated by profits but instead are motivated by a pursuit of higher social standings. For example, as Ellen mentioned, Polanyi gives a historical example of a primitive society which practices reciprocity and redistribution. Basically Polanyi is arguing that it is not human nature to seek maximum material gains but instead to seek a higher social standing. Polanyi however does say that the accumulation of wealth is done to maximize ones social position.
To make this post unique from the ones above, I want to compare how Polanyi and Marx might look at the market system differently. First, I would argue that Polanyi would agree with Marx in that there is a damaging effect on society by the market system. However, this is where their similarities end. I would argue that Marx would say we need to stop the market altogether and implement a socialist regime, whereas Polanyi would disagree and advocate that we must keep the market system but slow its pace down in order to protect society. Polanyi is focusing on preserving society, and since the market is embedded in society, we must work to prevent it from turning humans and nature into commodities. Thus is Polanyi’s Double Movement. How do we obtain economic liberalism which aims at establishing the economic market while at the same time focus on social protection which aims at conserving man and nature? The tension between these two desires is eminent. Thus as Carolina proposed, “the government and the people can work with one another to attain economic improvements and progress.” But the only way this will be possible is to encourage more participation by individuals in society which Carolina mentions. Only then can government be help accountable to the people to preserve society while seeking economic liberalism.

[johndoylemason]

I disagree with Ellen. Maintaining a laissez-faire economic system does not always gaurentee a safer market economy. As seen later in the US prior to the start of the 20th century, a laissez-faire economic strategy can lead to monopolies and a lack of sufficient social precautions for the society as a whole. Polanyi argued that there is a great connection between both economic and social ends to the civilization and that the two must be cohesive. If laissez-faire is to be adopted there must be steep governmental regulation which would not be cohesive with socialism or the public relation views that facism touted before coming to power.

In order to be politically correct at the time the social order had to be disassembled because it was clearly polarized and broken. Until the government adopted improved social standards for the workforce, eliminating the inhumane notions of labor as a commodity which is certainly must be as well as land which is also a tangible good.

A strong modern state must be founded in order to adopt modern economic market systems. It is up to the government argued Polanyi to push for stronger social changes to improve competition as the economy will provide increased strain on the society as demand and supply are more greatly affected by the society.

[Helen Louie]

I believe that my classmates have done a great job explaining and interpreting Polanyi’s argument. I especially agree with the statements made by Ellen and Yelena. Thus, I will not repeat them. However, Yelena does make a point about the importance about the four ideals of the pre-WWI world. However, I do not agree with the statement made about Polanyi’s narrow view of history, because to a point all of the authors that we have read have a narrow point of something, such as previous readings have had about the working class. The authors are limited and influenced by their environment.

Although, I do agree with Polanyi that there is conflict between economic logic and political necessity because of their definitions of commodities, I do not believe that the damage from the conflict is as disastrous as Polanyi states. Although, economic logic and political objectives contrast at times, they are interdependent and their problems are linked. Even though the factors define commodities differently, they have worked together before. It is hard not for economic logic and political necessity not to rely on each other, they are socially linked according to Polanyi; therefore I do not agree with Roushani’s argument about returning to a laissez-faire economy. Today, it might be better for the government to be more involved in the market because of the powerful influence that corporations have. It appears that today the economy is a laissez faire one. Changes in both factors result in changes in the world, according to Polanyi the changes led to chaos in the social order. There was chaos at the time, but I believe that it was as a result of the war and more good could be done if the economic realm and the political realm are more similar. However, I do not mean that the government should have complete control over economic issues. It should be that the two are equals. Thus, I believe that the best solution to manage the border where economic logic meets political objectives is to increase the border, such that there is more overlap between the two and the dependence of the two increases.

[Samira Ghassemi]

As mentioned in the opening chapter, Polanyi reminds his readers of the 100 years of peace between the great powers. The Holy Alliance which later became the Concert of Europe, was one of Bismarck’s notable accomplishments, and even though there were little wars, none of which spilled over to other countries and were kept quiet; nothing like the devastating disaster of the Great War.

In regards to what some of the previous posters had mentioned as well as in the first chapter, Polanyi’s four institutions: the notorious gold standard, balance of power, self-regulating markets and the liberal state aligns his pessimism of a laissez-faire economic system and declares government interaction for the sake of “human and natural subsistence of society.” Also, his presiding notion of the “fictitious commodities” and its result to the destruction of society, leading to the rise of socialism and fascism can be seen in past examples. As professor Delong mentioned in his lecture, the distrust in the stock market manifested initially from the government moving in too quickly and raising interest rates. That led to a decrease in consumption spending, falling prices and essentially deflation. People kept their money under their mattress and the faith (a very important factor – especially concerning the gold standard) in the market was lost, thus society swinging toward socialist idealisms.

I agree with Glory’s presumption of Polanyi’s warning, “that when political and economic motivations are no longer in harmony, political and economic peace and prosperity are at risk?” To continue on that notion, the Concert of Europe meets a historical example of political and economical objectives. The great powers set aside their political objectives and economic entitlements and worked together, creating a lasting balance of power of “peace and prosperity.” Again, managing this boarder of economic and political intentions rely on faith in the system and trust between the heads of power. Once Bismarck passed, the system soon dissembled and disintegrated, namely after the Crimean War. The possessions of the Ottoman Empire were sparsely scattered, which fueled jealous and privileged claims among the powers. Wars emerged and people were left prosperous, as some were left either dead or deprived.

Following what Glory later said about the strength of an individual in socially-just policy making: I just read in an article that it took the Yakima Indians about 100 years to gain water rights for their tribal communities (including a conglomeration of 4 other tribes) along the Colorado River. Living conditions were on the verge of starvation. These individuals had been seeking justice since the conquering of their land (the U.S. has Hitler’s admiration for acquiring their land so adamantly and successfully). It takes determination and will for something to be accomplished, especially when the average person is more concerned about “enhancing social prestige” (48) than social well-being.

I found Yelena’s comment insightful, regarding the gold standard as the mechanism for Polanyi’s transformation. International trade was definitely affected with the money value fluctuations after the gold standard dissipated. A way to build on economic and political intentions in today’s world, ideally I would suggest to reenact the Concert of Europe, but that fell for a reason, thus we should only look back to learn. Therefore, if I was not clear about it in the above paragraphs, ultimately communication between the two interests and as Polanyi had stated, there needs to be government on a macroeconomic level to supersede the social benefit of society (as he stated, it is unfortunate that the average person only looks out for themselves).

[Samira Ghassemi]

regarding the earlier post: I meant the government should oversee that the social benefit of society can be implemented and is in fact not abused (as it so often is). Just as John mentioned, it is the government who should ensure welfare for society.

With that I would like to end this with Polanyi mentioning anti-mercantile ideals of land, labor and money for sale as a precondition to a market economy. That is how we shifted from the 18th century, regulated to a self-regulated economy.