A Well Stated Criticism of Karl Polanyi
Mark Pennington (London) writes in the Pileus Blog (HERE):
‘Down with Karl Polanyi’
‘When advancing the case for ‘free markets ‘ classical liberals are often chided for failing to recognise the wisdom of Karl Polanyi. In The Great Transformation Polanyi claimed that the pursuit of a ‘free market’ system is chimerical. Historically such an economy did not emerge spontaneously but was the result of social engineering by a nineteenth century state heady on the ideology of Adam Smith. Prior to this period it is alleged that markets and the pursuit of personal gain barely existed and that the responsiveness of people to price signals and incentives is merely a construct of modern economics. According to Polanyi, the result of the great social experiment with markets in the 19th century was a period of social dislocation which resulted in a widespread movement to regulate capitalism and build the welfare state. The market economy, therefore, is neither free in its origins and neither can it be left free to function without intervention of the state. Rather, markets should be recognised as ‘embedded’ in a nexus of social norms and institutions which emphasise solidarity and not as autonomous, freely operating structures in which the state misguidedly ‘intervenes’.
Notwithstanding Polanyi’s enduring popularity on the left his supposed insights are either historically inaccurate or based on a crude misrepresentation of classical liberalism. First, the vast majority of modern historical research on the origins of markets ably summarised by Hejeebu and McCloskey contradicts Polanyi’s central claims.* (Hejeebu, S., McCloskey, D.(2000) The Reproving of Karl Polanyi, Critical Review, 13 (4) …
… classical liberalism has never claimed that narrowly selfish behaviour is all that is required to sustain the social fabric. Of course markets are always ‘embedded’ in a broader nexus of institutions, but the question we need to ask is precisely what sort of institutional and social norms are required to facilitate social cooperation on the widest possible scale. Polanyi and his followers prefer to rely on hackneyed accounts of the Wealth of Nations rather than recognise that Smith’s support for markets and ‘self interest’ constituted part of a broader ethical system set out in the Theory of Moral Sentiments. Specifically, Smith was concerned to elucidate the balance between the social norms appropriate to contexts of commercial exchange and those appropriate in more intimate environments. From Smith’s point of view feelings of sympathy which include love, friendship and reciprocity are reserved for people of whom we have detailed personal knowledge. The morals expected in commercial relations which are often between relative strangers, however, tend to be more impersonal , focussed on principles such as the observance of contracts and are oriented more towards the ‘self interest’ of the parties involved rather than the direct benefit of ‘others’. The great mistake is to suppose that the type of ethos that pervades family life or that in tight knit communities can operate on a much wider scale. The development of inclusive markets requires a more impersonal ethos which enables people to engage with diverse actors who may not share the same moral outlook. If people deal only with those who share the same moral outlook or trade only with ‘locals’ rather than engage in transactions with ‘foreigners’ then the sphere of potentially cooperative relationships will be reduced. The alternative to self-interest is not solidarity, but suspicion if not outright conflict.
…
So, the next time you are confronted with an opponent waxing lyrical about Polanyi’s supposedly profound insights on the status of markets and political economy, invite them to read some history – and some Adam Smith.’
Comment
I agree that many people with whom I interact (and who should know better, being historians of economic thought) seem to be uncritical of Karl Polanyi’s thesis (no major markets prior to 19th-century capitalism and his consequent hostility, and those of his followers, to modern markets).
Morris Silver showed in detail that Polanyi’s thesis was not tenable in classical times. Even the simple fact that Rome’s vast armies were paid in coins that were spent in the local economies where they were stationed is dismissed, or that money changing from foreign into local currencies in temples dotted all over Europe was an important function of their more secular sides.
Polanyi’s theses were contrived to justify an ideological prejudice against markets, part-sociological speak at best. His knowledge of Adam Smith’s works was weak, as was his knowledge of history.
‘Down with Karl Polanyi’
‘When advancing the case for ‘free markets ‘ classical liberals are often chided for failing to recognise the wisdom of Karl Polanyi. In The Great Transformation Polanyi claimed that the pursuit of a ‘free market’ system is chimerical. Historically such an economy did not emerge spontaneously but was the result of social engineering by a nineteenth century state heady on the ideology of Adam Smith. Prior to this period it is alleged that markets and the pursuit of personal gain barely existed and that the responsiveness of people to price signals and incentives is merely a construct of modern economics. According to Polanyi, the result of the great social experiment with markets in the 19th century was a period of social dislocation which resulted in a widespread movement to regulate capitalism and build the welfare state. The market economy, therefore, is neither free in its origins and neither can it be left free to function without intervention of the state. Rather, markets should be recognised as ‘embedded’ in a nexus of social norms and institutions which emphasise solidarity and not as autonomous, freely operating structures in which the state misguidedly ‘intervenes’.
Notwithstanding Polanyi’s enduring popularity on the left his supposed insights are either historically inaccurate or based on a crude misrepresentation of classical liberalism. First, the vast majority of modern historical research on the origins of markets ably summarised by Hejeebu and McCloskey contradicts Polanyi’s central claims.* (Hejeebu, S., McCloskey, D.(2000) The Reproving of Karl Polanyi, Critical Review, 13 (4) …
… classical liberalism has never claimed that narrowly selfish behaviour is all that is required to sustain the social fabric. Of course markets are always ‘embedded’ in a broader nexus of institutions, but the question we need to ask is precisely what sort of institutional and social norms are required to facilitate social cooperation on the widest possible scale. Polanyi and his followers prefer to rely on hackneyed accounts of the Wealth of Nations rather than recognise that Smith’s support for markets and ‘self interest’ constituted part of a broader ethical system set out in the Theory of Moral Sentiments. Specifically, Smith was concerned to elucidate the balance between the social norms appropriate to contexts of commercial exchange and those appropriate in more intimate environments. From Smith’s point of view feelings of sympathy which include love, friendship and reciprocity are reserved for people of whom we have detailed personal knowledge. The morals expected in commercial relations which are often between relative strangers, however, tend to be more impersonal , focussed on principles such as the observance of contracts and are oriented more towards the ‘self interest’ of the parties involved rather than the direct benefit of ‘others’. The great mistake is to suppose that the type of ethos that pervades family life or that in tight knit communities can operate on a much wider scale. The development of inclusive markets requires a more impersonal ethos which enables people to engage with diverse actors who may not share the same moral outlook. If people deal only with those who share the same moral outlook or trade only with ‘locals’ rather than engage in transactions with ‘foreigners’ then the sphere of potentially cooperative relationships will be reduced. The alternative to self-interest is not solidarity, but suspicion if not outright conflict.
…
So, the next time you are confronted with an opponent waxing lyrical about Polanyi’s supposedly profound insights on the status of markets and political economy, invite them to read some history – and some Adam Smith.’
Comment
I agree that many people with whom I interact (and who should know better, being historians of economic thought) seem to be uncritical of Karl Polanyi’s thesis (no major markets prior to 19th-century capitalism and his consequent hostility, and those of his followers, to modern markets).
Morris Silver showed in detail that Polanyi’s thesis was not tenable in classical times. Even the simple fact that Rome’s vast armies were paid in coins that were spent in the local economies where they were stationed is dismissed, or that money changing from foreign into local currencies in temples dotted all over Europe was an important function of their more secular sides.
Polanyi’s theses were contrived to justify an ideological prejudice against markets, part-sociological speak at best. His knowledge of Adam Smith’s works was weak, as was his knowledge of history.
Labels: Karl Polanyi
