Bringing Money to the Market: The Ambiguity in Polanyi’s Third “Fictitious Commodity”

Abstract

The contribution examines Karl Polanyi’s analysis of the fictitiousness of the commodity description of money, and its suitability as a reference for the analysis of the commodification of money within contemporary markets for credit and finance. Any critique of the commodification of money that draws on Polanyi’s influential argument should distinguish between two fundamentally different meanings of the occurrence of money as a commodity: the institutional system that makes some commodity money versus the commercial practice that turns money into a commodity. Only a particular strand of Polanyi’s analysis provides a point of reference for a comprehensive critique of the commodification of money, rather than the monetization of some type of commodity. Departing from the aspects of Polanyi’s analysis that are specific to the political economy of the gold standard, the article draws on Polanyi’s material account of the essential contributions of public organization and social convention in the constitution of money. On these grounds, the commodification of money is potentially objectionable as the social disembedding of a common public institution.

Keywords:

• Polanyi
• money
• commodification
• markets
• credit

JEL Classification Codes:

• B40
• E40

Disclosure Statement

No potential conflict of interest was reported by the author.

Notes

1 In the following, the reference to “objects” is meant to entail not only material things and physical resources, but also services, relations, legal titles, etc.

2 Jason Brennan and Peter Jaworski (2016, 47) refer to these objections as “semiotic,” because they pertain to the meaning of an object in so far as its commodification expresses “an attitude that is incompatible with the intrinsic dignity of [an object], or would show disrespect or irreverence for some practice, custom, belief, or relationship with which [the object] is associated.” For a reply to those moral objections to commodification that are derived from inherent properties of specific types of noncommodifiable objects see Brennan and Jaworski (2016, 75–84). Recent accounts of the moral limits of the market are developed by Margaret Radin (1987), Debra Satz (2010), Michael Sandel (2012), or Viviana Zelizer (1994). Glen Cohen (2003) offers an overview of the main types of arguments in this debate.

3 See Mellor (2010), Pettifor (2017), or Jessop (2019).

4 Marx argues that the social sphere of the market presupposes an entity that is capable of representing economic value without partaking in any of the specific qualities that render commodities economically valuable. Money provides this abstract reference that establishes the very idea of mere value. See Derpmann (2018, 489).

5 See also Knafo (2019, 93–94).

6 Brennan and Jaworski (2016, 49, 60–73) discuss varieties of this argument as the wrong currency objection and the wrong signal objection.

7 Radhika Desai (2020, 80–81), however, observes that the significance of money in the argument of The Great Transformation is widely ignored across much of the literature on Polanyi’s political economy. This may, at least in part, be explained by the complexities entailed in transferring Polanyi’s historically situated critique to contemporary money.

8 See Saiag (2014) or Fraser (2014).

9 This focus becomes apparent in Polanyi’s initial consideration to publish the analysis of The Great Transformation as The Liberal Utopia: Origins of the Cataclysm. Apparently, Polanyi dismissed this alternative title because of the ambivalent meaning of the term “liberal.” See Dale (2010, 45).

10 Polanyi (1957b, 243) dismisses the equation of the economic sphere with output optimization and competitive markets. A more substantive meaning of “economic” includes a broader view of a variety of human relationships with their natural and social environment governing the satisfaction of material needs.

11 On the transformation of market economies into market societies, see also Polanyi (1977, 9).

12 See Knafo (2019, 89).

13 Fraser (2014, 544) demonstrates that Polanyi is not sufficiently sensitive to and critical of non-market forms of domination and non-economic social struggles, and the social meaning of the resistances to racial or sexual oppression.

14 See the very similar formulation in Polanyi (1977, 47). See also Polanyi (2001, 44, 60).

15 Polanyi (1957b) describes this as the generalization of the use of price-making markets, due to which “all goods and services, including the use of labor, land and capital are available for purchase in markets and have, therefore, a price.” See also Polanyi (2001, 74).

16 The commodification of labor and land is described in very similar terms in Polanyi’s The Livelihood of Man (1977, 10–11). Here, however, Polanyi does not discuss the commodification of money within the triad of fictitious commodities that structures the debate in The Great Transformation. In other writings, Polanyi (1957b, 255–256) shows a similar focus on the commodification of land and labor, but nevertheless criticizes the economic system, in which “the market is the generating institution of which trade and money are the functions.” In this context, the reduction of money to a means of exchange and the dissolution of its non-market functions are criticized, but not necessarily in the terminology of commodification.

17 The close affiliation of these different notions in the term “commodity” is not as common in languages other than English. The French merchandise, for instance, provides a term that defines commodities by reference to their provision for a market (marché), and that is clearly distinguished from physical commodités.

18 See Polanyi (2001, 202): “Commodity money is simply a commodity which happens to function as money, and its amount, therefore cannot, in principle be increased at all […].”

19 A similar formulation can be found in Polanyi (1977, 100).

20 This is reflected in Wray’s (2015, xiv) distinction between the reference to money as a unit of account, which is not “any specific thing” and money tokens that are “money denominated IOUs or money records as they record IOUs denominated in the money of account […].” Polanyi (1977, 101) speaks of “operational devices” and “gadgets” that need to be distinguished from the symbol itself. See also Polanyi (1957b, 265–266).

21 This observation particularly applies to the main argument in The Great Transformation. As indicated before, Polanyi (1957b) is also concerned with a more general social effect of the emergence of all-purpose money replacing special-purpose moneys.

22 See Commons (1934, 390ff.) or Pistor (2019, 88–89).

23 Gemici (2019, 110–111) distinguishes between Polanyi’s analysis of money in “different allocation systems in history” and the particular analysis of money within the gold standard as a “key factor in creating strains in various national economies.”

24 Knapp (1918, 26) characterizes money as a “chartal means of payment”, as a morphic and proclamatory token (charta). In this view, money’s validity does not result from any specific substance, but from its form (morphe), or its meaning as a symbol. Further, this validity is dependent on a normative definition (proclamatio) in a social convention or a formal legal system.

25 Polanyi (1968, 197) explicitly rejects the “Ricardian fallacy of the commodity character of money.” On Polanyi’s objections to orthodox theories of money see Gemici (2019, 113–117).

26 Mitchell-Innes (1913, 379) refutes the presuppositions of the catallactic genesis of money as historically and conceptually inadequate. On this well-established point regarding the historical and logical status of token-money representing credit relations see Ingham (2004, 15–58) and Wray (2014).

27 See Dale (2010, 58–79), Frerichs (2013, 18–26), or Knafo (2019). Regarding Polanyi’s description of money as a social institution see Maucourant (2002).

28 Polanyi (2001, 202–203) argues that “commodity money was vital to the existence of foreign trade; token money, to the existence of domestic trade.”

29 Polanyi responds to Hume’s (1777, 311) assumption: “Suppose four-fifths of all the money in GREAT BRITAIN to be annihilated in one night, […], what would be the consequence? Must not the price of all labor and commodities sink in proportion […]?”

30 Saiag (2014, 563) and Knafo (2019) give concise overviews of Polanyi’s reconstruction of the causal mechanism of the disruptive effects of the gold standard.

31 See Watkins (2017).

32 For the relation of Polanyi’s treatment of money as a concept and as a set of instruments and practices see Saiag (2014, 560).

33 Mehrling (2017) also emphasizes that Polanyi’s critique of the commodification of money must be revised before it is deployed in analyses of current forms of financialization. Again, Knafo (2019) raises serious doubts about the economic mechanics of Polanyi’s argument.

34 On the interrelatedness of money markets and economic development, see Schumpeter (1934, 202). On the distinction between money as a confirmation of a contribution to the social product and as a pure command on the social product, see Schumpeter (1934, 147) and Schumpeter (1970, 210).

35 On different understandings of this “hierarchy” of money, see van’t Klooster (2018, 107–108).

36 Quoting Macleod, John R. Commons (1934, 431–432) describes commercial banks as manufactories of credit, and not as “intermediaries between persons who want to lend and those who want to borrow.” This ability to privately produce purchasing power is widely discussed in the theory of money. See, for example, Ingham (2004, 134–151), Mellor (2010, 31–46), Bjerg (2014, 115–137), Pettifor (2017, 15–26), or Rahmatian (2020, 65–78).

37 This theoretical context may serve as an answer to Hodgson’s (2017, 14) objection that Polanyi provides no explanation in what sense money is not a commodity. By echoing the Chartalist conception of money as a token that “comes into being through the mechanism of banking or state finance,” Polanyi (2001, 75–76) does make reference to a decided and widely established rejection of the conception of money as a product of the market.

38 See also Saiag (2014, 565ff.).

39 See Polanyi (1968, 197) again, or the argument in Mitchell-Innes (1913).

40 Obviously, not everything that is the object of a person’s right is a marketable object. Consider the right to vote that does not imply a right to sell one’s vote, or the rights deriving from a public office, from certifications etc. On alienability and market-inalienability, see Radin (1987).

41 Commons (1934, 431).

42 See Macleod (1889, 13–14, 72–75).

43 Polanyi describes the contradictory policies of the final stage of the gold standard that required the backing of currency internationally while being forced to allow for the expansion of domestic credit.

44 Desai (2020, 80) reads Polanyi’s argument both as a historical and as a moral argument.

45 Hyman Minsky (1986, 255) famously argues that “anyone can create money; the problem is to get it accepted.” However, Ingham (2020, 41) replies that “what he should have said is that anyone could issue ‘credit’—the problem was getting it accepted as ‘money.’” Commercial credit is only money in a specific social context. See also van’t Klooster (2018, 102).

46 This idea of monetary denominations as a public semantic infrastructure resembles conceptions that compare money to language. See Ganssmann (2012, 23–61). Polanyi (1977, 97) explicitly describes money as a semantic system. See also Polanyi (1968).

47 On this argument see also Bjerg (2014, 120–121).

48 Mellor (2010, 150) argues that those “who lend and borrow the money that is created out of ‘nowhere’ are using social and public resource for private gain.” Commercial credit money is created from a public resource, because it is created as “claims upon society that are ultimately guaranteed only by society itself.”

49 See Ingham (2008, 53ff.) or Bjerg (2014, 251ff.).

Additional information

Notes on contributors

Simon Derpmann

Simon Derpmann researches and teaches at the University of Münster. The author expresses appreciation to two anonymous referees for their comments and criticisms that have been invaluable in refining the argument made in this contribution.