The Memory Bank

The limits of Karl Polanyi’s anti-market approach in the struggle for economic democracy

January 16, 2013 by Keith Hart

I am a fully paid-up member of the Karl Polanyi fan club. In the past few years I have published, with my collaborators, a collection of essays on the significance of The Great Transformation for understanding our times (Blanc 2011, Holmes 2012) and have made him a canonical figure for my versions of economic anthropology, the human economy and the history of money. I have also published two short biographical articles on him. I have contributed in this way to the recent outpouring of new work on Polanyi to which this book is a significant addition. I am a believer, but some believers also have doubts. I still have reservations about a Polanyian strategy for achieving economic democracy and these are linked to his historical vision of “market society”.  Theories are good for some things and not for others and, in my view, the plural economy would be best served by a plural approach to theory and politics. But first let me summarise what I most value personally in what I have learned from Polanyi.

Most anthropologists take their lead from the academic work done by Polanyi and his collaborators at Columbia University after the war. Trade and Market in the Early Empires (1957) established the “substantivist” school of anthropologists and historians who were committed to analysing the economies of “non-industrial” societies. I reject that division of economic anthropology’s subject matter and so did Polanyi when he wrote The Great Transformation (1944). I love his masterpiece for its vivid, erudite and passionate writing. It is truly a work of literature as well as being visionary. I know of few works of any kind with similar power to make such an impact on first-time readers. His discussion of money there is a source of endless inspiration for me and I have recently drawn on a late paper, “Money objects and money uses” (1964), to explain the collapse of the twentieth-century money system. Polanyi, with Georg Simmel, is the key figure for me in helping to explain the current world economic crisis. Polanyi sees money and markets as ways of extending societies beyond their local insularity, thereby introducing a permanent tension between their external and internal dimensions. If nature, humanity and society should not be treated as “fictitious commodities” (land, labour and capital), Polanyi implies that money is the most inclusive means of our social interdependence and must not be bought and sold like a sack of potatoes.

I have never found much use for Polanyi’s typology of modes of transaction as a set. But his vision of human economies as being articulated by a limited number of institutional forms found widely across human history is an essential part of how I think now. So too is his reminder that the social solidarity embodied in associational life is as vital for economic democracy as the interaction of states and markets. The concepts of “solidarity economy”, “plural economy” and “human economy” overlap considerably and find common inspiration in Polanyi’s work, possibly more than any other single author. This undoubtedly accounts for his current popularity at a time when many people around the world are seeking to move beyond the sterile contrast between “revolutionary” and “reformist” approaches to improving the economy.

The core of a “human economy” approach (Hart, Laville and Cattani 2010), in my view, is its emphasis not just on local institutional particulars or its humanism, reflecting what people concretely do, think and want wherever they live, but also on the need for an economic vision to bridge the gap between everyday life and humanity’s widest associations which are inevitably impersonal and lie beyond the actor’s point of view. It is urgently imperative (a “new human universal”) for all humanity to learn how to live together in world society. Polanyi, writing towards the end of what has been described as “the second thirty years war”, epitomises this idea in his masterpiece, where the word “human” crops up repeatedly in the context of economy. The question is how far opposition to large-scale bureaucracies, whether governments or business corporations, along with a preference for initiatives grounded in local social realities, can take us when our aspirations for economic democracy must somehow embrace the movement of the world we live in. And here Polanyi’s theoretical framework shares some deficiencies with other strands of the socialist tradition.

What after all is the “great transformation” of human history that we are living through? In 1800 the world’s population was around one billion. At that time less than 3 in 100 people lived in cities. The rest lived mainly by extracting a livelihood from the land. Animals and plants were responsible for almost all the energy produced and consumed by human beings.  A bit more than two centuries later, world population has reached seven billions. The proportion living in cities is about a half. Inanimate sources converted by machines now account for the bulk of energy production and consumption. For most of this period, the human population has been growing at an average annual rate of 1.5%; cities at 2% a year; and energy production at around 3% a year. This last figure is double the rate of population increase, a powerful index of the economic expansion of the last 200 years. As a result, many people live longer, work less and spend more than they did before. But the distribution of all this extra energy has been grossly unequal. A third of humanity still works in the fields with their hands. Americans each consume 400 times more energy than the average Ugandan.

This hectic dash of humanity from the village to the city is widely assumed to be driven by an engine of economic growth and inequality known as “capitalism”. But several social forms have emerged to organize the process on a large scale, not all of them reducible to this single term: empires, nation-states, cities, corporations, regional federations, international organizations, capitalist markets, machine industry, global finance and telecommunications. There is a pressing need for more effective social coordination at the global level and the drive towards local self-organization is strong everywhere. Special-interest associations of every kind proliferate. Resistance to the unequal society we have made often takes the form of denigrating the dominant bureaucratic institutions — “the state” and “capitalism” being favourites in this regard – in favour of promoting small-scale self-organized groups. Polanyi may be read as supporting such a move. Yet it is inconceivable that any future society of this century could dispense altogether with the principal social forms that have brought us to this point. So the real task is to work out how states, cities, big money and the rest might be selectively combined with citizens’ initiatives to promote a more democratic world society. This requires us to emancipate ourselves from viewing the economy exclusively in national terms.

Polanyi’s vision of human history was deceptively simple. He presented the emergence of “market society” in the nineteenth century as a radical break. Marx and Engels likewise believed that what they were witnessing in Victorian England entailed an irreversible change for the world as a whole. They were right. But or course their dialectical method is quite different from Polanyi’s and they would never have used Polanyi’s idea of “market society”. Polanyi was aware of historical continuities in the longue durée. Nonetheless, he insisted that we should acknowledge the qualitative change that took place when “market society” first became dominant. This moment was marked by Britain’s repeal of the Speenhamland law in 1834, when human labour was consequently reduced to the status of a “fictional commodity”. Polanyi’s characterization of this new social form as “the market” (sometimes the “self-regulating market” or its counterpart in economic ideology, the “free market”) leaves out some important features of the bureaucratic revolution that underpinned a shift to mass production and consumption in the late nineteenth century.

The modern synthesis of the nation-state and industrial capitalism may be termed “national capitalism” (Hart 2009): the institutional attempt to manage money, markets and accumulation through central bureaucracy in the interest of a community of citizens. It is linked to the rise of large corporations as the dominant form of business and it represented a new alliance between capitalists and the traditional enforcers (the military landlord class) formed with the aim of containing the urban masses unleashed by the industrial revolution. It was in essence Hegel’s recipe in The Philosophy of Right (1821), the idea that only state power could contain the inequality intrinsic to capitalist development, while markets could in turn limit excessive concentrations of political power. Marx certainly didn’t envisage anything of this sort, nor did Polanyi see it in retrospect; but Max Weber could hardly miss the dualism of East and West in the new German empire’s ruling partnership between Prussian bureaucracy and Rhineland capitalism. “National capitalism” is still the dominant social form in our world, even if it may now be on the brink of collapse.

All the agrarian civilizations of Eurasia tried to keep markets and money in check, since power came from the landed property of an aristocratic military caste which feared that markets might undermine their control over society. This was expressed in medieval Europe as an opposition between the “natural economy” of the countryside and the commerce of the city. Long before this Aristotle, Alexander the Great’s tutor when the Macedonian cavalry overran the Greek cities, located society in the self-sufficiency of manorial estates, declaring that markets geared to profit-making were anti-social. This view of economy (oikonomia, literally “household management”) prevailed until the dawn of the modern era, when Jane Austen could describe one of her characters as a poor “economist” for her inability to handle the servants in a large country house. When Marx and Engels claimed that history had been a struggle between town and countryside, they had this conflict between landed power and urban commerce in mind.

Even in stateless societies, markets were usually kept marginal and subject to regulation by the agents of dominant social institutions. Why are markets supposed to be subversive of traditional social arrangements? Because commerce knows no bounds – all markets are in a sense world markets – and this threatens local systems of control. They offer a potential means of escape to the dominated classes: women, young people, serfs and slaves, ethnic minorities. The power of long-distance merchants often modified the autonomy of local rulers. This dialectic of local and global economy defined the struggle between competing interests long before it became a prominent feature of how we perceive the modern world. Adam Smith knew what he was taking on when he proposed that society had nothing to fear from markets and indeed much to gain. He stopped short of claiming that society’s interests as a whole were best served by markets left to their own devices; but these reservations have largely been forgotten since then.

The last two centuries have seen a strident debate between capitalist and socialist camps insisting that markets are either good or bad for society. The latter draws implicitly on the pre-industrial apologists for landed rule whose line was, broadly speaking, Aristotle’s. Karl Marx himself considered money to be indispensable to any complex economy and was radically opposed to the state in any form. However, many of his followers, when they did not try to outlaw markets and money altogether, preferred to return them to the marginal position they occupied under agrarian civilization and were less hostile to the state, pre-industrial society’s enduring legacy for our world. Polanyi falls within this anti-market camp since he acknowledged Aristotle as his master and considered “the self-regulating market’s” contradictions to have been the principal cause of the twentieth-century’s horrors.

A less apocalyptic version of socialism in the tradition of Saint-Simon acknowledges the social damage done by unfettered markets (what Joseph Schumpeter called “creative destruction”), but would not wish to do away with the wealth they produce. Indeed the leading capitalist societies at one stage all signed up for the idea that states should try to contain the inequality and ameliorate the social misery generated by markets. The BRICS are entering this stage now. The emphasis has shifted over time between reliance on states and on markets for managing national economy, between social and liberal democracy of various colours. The general economic breakdown of the 1930s turned a large number of American economists away from celebrating the logic of markets towards contemplating their repair. This “institutional economics” persists as the notion that markets need self-conscious social intervention, if they are to serve the public interest. John Maynard Keynes produced the most impressive synthesis of liberalism and social democracy in the last century. Much recent writing on Polanyi would place him within this tendency rather than as a card-carrying anti-marketeer. He did recognize a role for the market and lined up with those who sought institutional means to correct capitalism’s ills.

The market’s apologists likewise divide between some for whom it is a trans-historical machine for economic improvement best left to itself and those who acknowledge a role for enlightened public management of commerce. Classical liberals promoted markets as a means towards greater individual freedom as a corrective to the arbitrary social inequality of the Old Regime. But the industrial revolution brought about a shift to urban commerce that made vast new populations of wage labourers rely on markets for food, housing and all their basic needs. Under these circumstances, in Britain especially, society itself seemed to retreat from view, being replaced by an “economy” characterized this time by market contracts instead of domestic self-sufficiency. Indeed, Margaret Thatcher, one of the architects of the contemporary revival of market fundamentalism, once said “There is no such thing as society”. Others hold that society’s remaining defences are simply too weak to hold out against the rising tide of global money: you can’t buck “the markets”. Unregulated markets are engines of inequality, so this notion of markets as a natural force beyond social regulation serves also to legitimize wealth and even to make poverty seem deserved.

The founders of modern social theory all considered markets to be progressive in that they broke up the insularity of traditional rural society and brought humanity into wider circles of discourse and interaction. But they differed over the consequences of this move. Marx and Engels considered that the power of private money (capital) was too fragmented to organize the urban societies brought into being by machine production of commodities; so they looked to the enhanced social potential of large concentrations of workers for a truly collective remedy. Weber recognized that the formal rationality of capitalist bureaucracy led to the substantive deterioration of livelihood for many. But, as a liberal, he considered wholesale state intervention in markets to be a recipe for economic disaster. Durkheim and Mauss were both cooperative socialists who wanted to emphasize the human interdependence entailed in an expanded social role for markets and money, while rejecting the Social Darwinist claim that an unfettered capitalism ensures the “survival of the fittest”. Marcel Mauss gave higher priority to the human drive towards greater social inclusiveness, for which money and markets in various forms are indispensable, than to the consolidation of territorial states.

It is odd that Polanyi sometimes reduces the structures of national capitalism to an apolitical “self-regulating market.” For his analysis of money, markets and the liberal state was intensely political, as was his preference for social planning over the market. His wartime polemic, reproducing something of his opponents’ abstractions, was more a critique of liberal economics than a critical account of actually existing capitalism. This would explain the lingering confusion over whether he thought a “disembedded” market was possible or was just a figment of liberal ideology, market fundamentalism. Similarly, we might argue today either that neoliberalism did effectively disembed the market economy or that its claim to have done so was a mystification of the invisible political processes of rentier finance in which markets are still embedded. In either case, the post-war turn to social democracy or “embedded liberalism” – the apogee of national capitalism – was hardly anticipated by The Great Transformation. We should not repeat this error when we draw inspiration from Polanyi in the struggle for economic democracy today.

References

Blanc, J. 2011. Compte rendu de lecture: C. Hann and K. Hart (eds) Market and Society: The great transformation today, Cambridge: Cambridge University Press (2009). Revue Française de Sociologie 52, 4: 812-815.

Hart, K. 2009. Money in the making of world society. In C. Hann and K. Hart (eds) Market and Society (see above), 91-105.

Hart, K., J-L. Laville and A.D. Cattani (eds) 2010. The Human Economy: A citizen’s guide. Cambridge: Polity.

Holmes, C. 2012. Problems and opportunities in Polanyian analysis today, Economy and Society, 41, 3: 468-484.

English original of an Afterword (Postface) to be published in French in Isabelle Hillenkamp et Jean-Louis Laville (eds)   Socio-économie et démocratie: l’actualité de Karl Polanyi (forthcoming).

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