Karl Polanyi on economy and society: a critical analysis of core concepts

Abstract

The Review of Social Economy was founded to highlight the irreducible social aspects of economic activity. Yet, the nature of the ‘social’ and the ‘economic’ are both unresolved, and they are much more problematic than often assumed. This article probes Karl Polanyi’s depiction of the relationship between the ‘social’ and the ‘economic’ and subsequent discourse on ‘embeddedness’. In his Great Transformation (1944) Polanyi associated the ‘economic’ with motives of material gain, while ‘social’ referred to norms of reciprocity and redistribution: his distinction between the ‘social’ and the ‘economic’ then focused primarily on different kinds of motivation. But in a 1957 essay he brought in different kinds of institutions that engender different types of motivation. Polanyi (1944) argued that after 1800 Britain was transformed into a market-oriented ‘economic’ system, based on motives of greed and material gain. He also proposed that an effective market system had to be ‘self-adjusting’ and free of political interference, despite his important additional claim that the state was involved in its creation. Some of Polanyi’s core concepts and arguments are contradictory and problematic, and need to be reconsidered, especially if his enduring insights are to be salvaged.

Keywords:

• Karl Polanyi
• embeddedness
• social
• economic
• markets
• capitalism

JEL classification:

• B52

Notes

¹ For other forceful criticisms see Hann and Hart (2009). Holmes (2012) gives a useful overview. An earlier critique is Sievers (1949).

² Mainstream economists centre on gain, but in terms of utility maximization, and not necessarily markets or prices. For many of them, ‘economics’ is not solely about markets, but applicable to any situation involving choice, even without market prices. For many of them, their subject is defined in terms of the tools of utility-maximization and rational choice, applied to almost any area of enquiry, including families and other ‘social’ domains (Becker 1976; Robbins 1932).

³ This theoretical move can be criticized on the grounds that it reduces every motivation to a matter of mere preference, whereas motivational impulses are multiple and varied (Hodgson 2013; Wilson 2010).

⁴ While competitive markets engender self-interest and pecuniary calculation, this is far from the whole story. There are arguments and evidence to suggest that markets also rely on broader moral sentiments, such as notions of justice, and may also engender some forms of cooperation (Hodgson 2013; Schultz 2001; Smith 1759, 1776; Zak 2008).

⁵ See Hodgson (2015a: 132–135, 389–390) for a similar definition and information on the earliest markets.

⁶ Note that in his 1957 essay Polanyi dropped the concept of ‘householding’ and replaced it by ‘exchange’ (Polanyi et al. 1957: 250). The other two categories remained. This indicated that ‘exchange’ was a much more long-lasting feature of human societies than his 1944 book seemed to suggest.

⁷ Note that Polanyi (1944: 234, 252) envisaged a future system with ‘production … regulated directly’ and markets as ‘useful but subordinate’. But while ‘the end of market society means in no way the absence of markets’ he wished to abolish markets for land, labour and money. Money would be no more than tokens and consequently ‘markets’ generally as we know them would no longer exist.

⁸ Since The Great Transformation was published, there has been a huge rise in taxation and welfare redistribution in developed capitalist economies. Despite large budget cuts and austerity, levels of public spending and welfare redistribution remain much higher than before the Second World War. Also they have largely held up since 1980, against claims of eroded redistribution in the era of globalization. See, for example, OECD data from http://stats.oecd.org/Index.aspx?datasetcode=SOCX_AGG (Retrieved 6 March 2015).

⁹ Maddison (2007: 382) calculated that 1500 GDP per capita figures for Mexico and South America were about two-thirds of that in China and less than half of that in Italy in the same year. US GDP per capita in 2003 was about 70 times greater than South American GDP per capita in 1500. The Inca Empire may have constituted about a third of the South American population at that time (Denevan 1992).

¹⁰ Such ‘group selection’ arguments used to be regarded as flawed, but they have been rescued by recent sustained scholarship (Bowles and Gintis 2011; Hodgson 2013; Sober and Wilson 1998).

¹¹ Maucourant and Plociniczak (2013: 516, 517) claimed that ‘Polanyi used the term “embeddedness” only twice in The Great Transformation’. They do not give page references and I have been unable to find these appearances. I shall stand corrected if they exist. Maucourant and Plociniczak (p. 517 n.) usefully cite appearances in Polanyi’s other works.

¹² The important claim that the motives of actors involve moral as well as money-seeking dimensions, even within the pecuniary culture of modern capitalism, is prominent in the present journal (e.g. Stikkers 1993) and in the similarly-titled ‘socio-economics’ founded by Etzioni (1988).

¹³ See also Block and Somers (2014). Note Block’s downgrading of the word capitalism and of the key modern role of financial institutions. Block (2003: 281) wrote: ‘“capitalism” is used very sparingly in the GT [Great Transformation]. Most of Polanyi’s references to capitalism in the book occur when he is discussing other sources that use that term. In constructing his own argument, he carefully employs the term “market society” instead of capitalism.’ These claims by Block are invalid. First, inspection of the text shows that it is untrue that ‘Polanyi’s references to capitalism in the book occur when he is discussing other sources that use that term’. Second, Block was wrong to suggest that the term ‘capitalism’ is ‘used very sparingly’ in the Great Transformation. In fact ‘capitalism’ appears 48 times, ‘capitalistic’ 17 times, ‘capitalist’ (or derivatives but excluding ‘capitalistic’) 32 times. Block’s preferred terms of ‘market economy’, ‘market society’ and ‘market system’ appear, respectively, 96, 18 and 49 times. They denote very different phenomena. While markets (in the sense of organized forums of exchange) have existed for a few thousand years, economic systems dominated by banking, finance and money capital emerged in Italy in medieval times and became more developed in Britain in the eighteenth century (Hodgson 2015a; Streeck 2012).

¹⁴ Özel (1997) argued that Polanyi’s notion of ‘fictitious’ commodities was influenced by Ferdinand Tönnies and is close to Marx’s idea of ‘commodity fetishism’. But Polanyi (1944: 72 n.) wrote that his ‘fictitious commodity’ concept had ‘nothing in common’ with Marx’s ‘commodity fetishism’. Also Marx, unlike Polanyi, clearly and repeatedly saw labour, land and money as ‘commodities’ under capitalism. Özel also claimed that Polanyi’s notion of a commodity privileges objects over relations.

¹⁵ Nelson (1995) argued that wage labour is not a commodity because it is hired, rather than bought outright, as with slaves. This confines the notion of a commodity to entities that can be bought or sold in their entirety. Because slaves, under this definition, can be commodities, this does not seem to be consonant with Polanyi’s general formulations concerning labour.

¹⁶ The contradiction between Polanyi’s notions of the market as ‘self-regulating’ and, by contrast, embedded in ‘social’ institutions is central to Gemici’s (2008) important critique.

¹⁷ Dale (2010: 73) noted the ambiguities in Polanyi’s notion of the market economy. The shift in its meaning from 1944 to 1957 was analysed further by Randles (2007). See Hodgson (1988, 2015a) on ‘impurities’. Schumpeter (1942) among others made a similar argument about the dependence of a market economy on non-market supports.

¹⁸ The growth and extent of Polanyi’s knowledge of the German historical school and American institutionalism is a matter for future research. Clearly he was familiar with works by Weber and the historical school before he left the Continent and came to Britain in 1933. But it seems likely that Polanyi’s deeper knowledge of American institutionalism came after he obtained a position at Columbia University in New York in 1947.

¹⁹ The normative issues here – which are not the subject of this present essay – are more complicated than some supporters of Polanyi suggest. While the attempted commodification of everything would have deleterious consequences (Sandel 2012; Satz 2010), the installation of some rights of ownership and trade (excluding slavery) can also imply some degree of formal equality under the law, and involve a move away from a world governed principally by hierarchy, status and conservative custom (Booth 1994).

²⁰ Stiglitz (2001) underlines this important point in his Foreword to The Great Transformation.

²¹ Block and Somers (2014: 99) wrote: ‘Where Polanyi is utterly original is in his startling claim that the self-regulating market … is a utopian idea’. This is contestable. Several leading economists have pointed to the limits to markets and their vulnerability to breakdown. Smith (1759, 1776) argued that the market system relied on supports from government, as well as on doses of justice and morality to restrain self-interest. As noted above, Marx (1975: 365) saw limits to the self-regulating forces of supply and demand. Above all, Keynes (1936) attacked the notion of the self-righting and self-regulating market in his General Theory.