Sunday, April 17, 2011

The Problem of Karl Polanyi

       This is the title of an eight-page essay by Allan Carlson, located here.

       Mr. Carlson introduces Karl Polanyi to us as being "Among the more enigmatic thinkers" of the twentieth century, and the author of the 1944 book, The Great Transformation, a work of economic history.

       I had been only very slightly familiar with Polanyi before reading this article today, so in this matter, as in most matters, I am an expert in nothing whatsoever.  But insofar as I have read any economic history, Mr. Carlson's extracts of Polanyi's writing indicate the mind and heart of a man who seems to understand a great deal about the strengths and weaknesses in economic theory.  Mr. Polanyi, I would suggest, stands somewhere in the tradition of natural-law economists, but he speaks with his own voice.

       At a time when Ayn Rand's ideas (some of which I agree with, and some I do not) become more influential with the current release of the movie based on her famous novel, Atlas Shrugged,  I think it is important to consider some very different alternatives in the broadly libertarian and Austrian tradition.  Polanyi has one.

       And at a time when the post-Civil War economic order in the United States is (quite inevitably and quite properly) coming apart, it is good to get beyond handwringing and anguish and consider what might, or what could, follow it -- preferably something much better.

       To any readers of this post, especially those who have pondered the thinking of Adam Smith,  Thomas Malthus, Ludwig von Mises, Peter Drucker (a personal friend of Polanyi), G. K. Chesterton, G. B. Shaw, Wendell Berry, and others, I think there is something here to invite your research and comment.

       Mr. Polanyi and Mr. Carlson refer to events, crucially important to their thinking, about which I must confess I have no knowledge.  I, for one, have got to do some research on "Speenhamland,"  The Great Transformation, Polanyi's theory of "double movement," and much more; and I hope eventually to post something in the comments section below.    I would be delighted for any readers to beat me to the punch.  Thanks.

*       *       *

       Allan Carlson is a professor of history at Hillsdale College.

       Thanks to Peter Goodgame for bringing this article to my attention.  Let's call it, Economics in One Lesson, part 2.



  1. Wow, this is good stuff. And if I had read this merely 4 or 5 years ago, I would suspected Mr. Polanyi of being a communist.

    If you are perceptive and you spend a little of bit of time in the workaday world, you know that right-wing rhetoric about the free market is bullshit. You know that social relationships play key roles in human behavior. You know that prosperity comes not to those who work hard, but to those who have the right connections.

    A market economy depends upon a centralized authority--yes! Left to themselves nobody would construct the system we have now.

    Still I (and a response from you, Robert would help) don't see how to get out from under centralized control in a broad sense unless the central authority helps the dependent become independent in some way. Am I wrong? Is there another way out?

  2. Uncle Stanley:

    I don't see the way out very clearly yet, either. It would certainly be encouraging if the central authority would help the dependendent become independent in some way, but if we look for that to happen, we may have a long wait.

    I haven't yet read The Great Transformation, so there may be some good ideas there to consider, but here are a few things that come to mind.

    1. Corporate ownership of money, property, people, and land is going to have to be sharply reduced, in favor of handing ownership to employees. The investor class is going to have to have its death-grip on the people removed. This needs to happen non-violently; even, non-prisonly, if I may mint a word.

    2. This might be done by some changes in the bankruptcy laws (which by the constitution, is at the federal level): a rule to the effect that when investors have shown that they are mis-managers by bankrupting a company whose existence depends on a state-granted charter (license to do business), the employees receive the ownership and management of the business, and the mere creditors, who have only a monetary and not a labor/sweat equity stake in the business, receive little or nothing. This might drop the stock and bond markets pretty sharply, which could have the effect of bankrupting still other corporations into having to be reorganized for the sake of human beings instead of computers -- how sad. Following a suggestion I read about somewhere, the investor class could be re-trained as lumberjacks or coal miners or salespeople for mom-and-pop stores. One immediate benefit would be that occupational safety regulation might seem more important. Maybe a higher minimum wage would be more popular, too.

    3. Poachers and drug-dealers have their assets seized when they commit crimes. Other petty criminals suffer home incarceration (but not imprisonment). People and corporations who commit securities frauds (entering into any contract that they cannot pay off, or is unsecured by real property) could have their assets seized and placed in home incarceration programs. Felons often forfeit the right to vote, and could be obligated not to contribute to any campaign or lobbying fund.

    Corporate farms could be broken up by similar means: acreage limitations, employee ownership rules, prohibitions of meat factories that breed disease, mistreatment and misfeeding of stock animals, and so forth.

    Laws of contracts could be changed: people can still make all sorts of contracts, as long as they are happy with their private arrangements -- but many types of contracts would be declared to be unenforceable in a court of law. In other words: people may break their contracts.

    Cut property taxes on residential property. Make mortgage foreclosure much more difficult and oblige the banks to negotiate with their victims under local (not federal or state) supervision.

    Healthcare comes to mind, too. Force the for-profit hospital corporations to divest to local civic or private control.

    Declare that health-related companies such as drug manufacturers are too important not to regulate (like insurance companies, or the ICC did the railroads after they abused their privileges): small profits; lower prices; removal of exclusive patent protection; employee ownership.
    All the above, of course, requires some government involvement. Could we do things that do not?

    1. Work for free. Don't demand wages. Share. Give. Take time off. Invite the poor to your house for a party. Stop tithing to your church and give to the poor or sick. The last thing this country needs is another megachurch -- or minichurch. There are more church buildings around than there are christians to fill them -- or good pastors to serve them.

    These are just notions; food for thought. Please don't assume that I have an agenda.

  3. After 20 years of essentially unfettered globalization I think it is clear that blind faith in "self-regulating markets" is disastrous. The myth of the "self-regulating market" was created by merchants and for merchants. Polanyi writes that banking naturally emerges as the leader of the merchant class, because money is the foundational commodity for all market transactions. To support the unfettered "free market" while criticizing the power and role of bankers is contradictory.

    Conservatives were sold the myth of the self-regulating market starting near the end of World War II with the publication of Hayek's "Road to Serfdom." The Conservative merchant class was reacting to the very real evils of communism, but it was a gross over-reaction to deplore and eventually tear down all the regulatory structures put in place by FDR to control the power and potential abuses of markets and market forces. Markets must be made to work for society. Society should never become a slave to the market. It always boils down to the issue of Freedom vs. Justice.

  4. Here's my post from facebook:

    I have the updated version (2002) of "The Great Transformation" on my kindle (transferred to my ipod touch), as well as the paperback. It's worth getting the updated version merely for the two introductions alone. One is by Joe Stiglitz, the other by Fred Block. It's interesting that it was published in 1944, the same year that Hayek published "The Road To Serfdom." Both Polanyi and Hayek came from Vienna and both were brought here, or at least supported financially, by the Rockefellers. But its clear that the "market fundamentalism" of Hayek emerged to take over global institutions like the IMF, World Bank and World Trade Organization. So the theories of Hayek seemed to have been most appreciated by the merchant/banking ruling elites. However, after 20 years of essentially unfettered globalization since the fall of the Berlin Wall, many of Polanyi's warnings about empowering "self-regulating markets" have come true.

  5. Embeddedness:

    Here's an overview of Polanyi's concept of "embeddedness," from the introduction of "The Great Transformation" by Fled Block. Polanyi really exposes how truly radical the capitalist idealistic notion of a self-regulating market is, and how recent it is in all of human history. The merchant class today truly enjoys an unprecedented level of power over human society.

  6. Robert,

    Perhaps you should turn your response into another post?!

    Yes, I agree, changing up the regulations on mortgages, bankruptcies, corporate ownership, securities fraud and so on would help. You need an authority (not necessarily federal) to do those things.

    But I agree also that doing things on your own, essentially "seceding" from the economic order, is also important, probably more important. For many of us, it's doable. But I was concerned for other folks, those who are working perhaps two jobs, barely keeping up with the rent, deep in debt, who simply have no wherewithal to become more economically self-sufficient. What do you do for those people? They would need outside help.

    We could provide that help personally, but how many of "us" are there? Churches could do it, but how many are really interested? I'm afraid the answers to these questions are incomplete, in the sense that, that just aren't that many people who care that much.

    Flat out refusing to tithe would cause quite a ruckus in most churches; it would certainly deny you membership or authority. What does that say about the churches? Not much that is good, I'm afraid, justifying, perhaps, a new Reformation.