Block on Polanyi QOTD (I Made You A Perpetual Motion Machine But I Eated It)*

I’m currently re-reading Karl Polanyi’s (1944) masterpiece, The Great Transformation: The Political and Economic Origins of Our Time, to present to a graduate history seminar. Along with the text itself, I’m also re-reading some of the seminal secondary work on Polanyi, including Fred Block’s (2003) article, Karl Polanyi and the Writing of “The Great Transformation”. Block elucidates some of the tensions in Polanyi’s writing, arguing that Polanyi shifted his theoretical framework as he rushed to finish the book before the end of WWII. Polanyi moved away from a certain economistic Marxian viewpoint, to his own more nuanced understanding of the relationship between economy and society**. But in his rush, Polanyi failed to revisit certain aspects of his analysis creating some tensions. In particular, Block argues that by the end of writing the book, Polanyi decided that economies are always embedded in social relations, and that modern market societies only think of the economy as disembedded. But at times, Polanyi still refers to various forces that interfere with the self-regulating market – a market he denies could ever exist. Block summarizes this tension:

But even by the logic of [Polanyi’s] own argument, there can never be a self-regulating market system, so the idea of impairing its functionality is an absurdity. It is the equivalent of complaining that one’s perpetual motion machine was damaged when it was inspected by skeptical scientists. (Block 2003: 297)

And that’s your quote of the day.

* Lol.
** Summarized set-theoretically by me as: ∀x, (Economy_x)∩(Society_x)≠∅

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16 Comments

  1. Ben

     /  November 4, 2010

    I was stuck on this issue for a while until I read the excellent new book by Gareth Dale. It’s titled “Karl Polanyi, The Limits of the Market”.

    Dale argues that the key to understanding Polanyi’s formulation of embeddedness and substantivism is to realise the importance of the influence of Ferdinand Tönnies and his distinction between Gemeinschaft and Gesellschaft.

    Dale argues that uncertainty over whether embedded (or disembedded) economy is a descriptive empirical term or an ideal type, follows directly from its Tönnesian predecessor. Gemeinschaft and Gesellschaft can be taken as different types of societies, or as different types of relations that take place in one society.

    Dale points out that in his classic formulations of embeddedness, Polanyi, “equates societies based on ‘status’ or Gemeinschaft with those in which the economy is embedded in non-economic institutions. Policy in such societies is geared to satisfying socially determined needs; their individual members tend to suppress egotistical behaviour in favour of their role within the collective whole.”

    In societies based on contract, or Gesellschaft, by contrast, the sphere of economic exchange is “institutionally separate and distinct”. In Gesellschaft the economy is governed by laws of its own and ultimately motivated by the incentives of fear, hunger and hope of gain.

    I am persuaded by his conclusion:
    “To say that the liberal market is ‘embedded’ in the sense of ‘instituted’, then, does not negate its ‘disembeddedness’ at other levels. The term does not denote the economy’s separation from society but from non-economic institutions, a separation that produces a rift between individual and society and a consequent moral degeneration.”

    It’s the best secondary source on Polanyi that I have ever come across. Highly recommended.

    Cheers,

    Ben

    • Sounds excellent! Does Dale discuss Polanyi’s take on Keynes? I was wondering about that today and didn’t know the answer.

      • Ben

         /  November 4, 2010

        I don’t recall reading that part, but looking in the index there are many refs to Keynes.

  2. Michael Bishop

     /  November 4, 2010

    I think that a statement like “economies are embedded in social relations,” needs to be given more specific empirical content in order to be very useful.

    Correct me if I’m wrong, but in that quote, Block claims that because perfectly self-regulating market-systems are impossible, market-systems have no self-regulating capacity at all. Define “self-regulating,” and we end up with something which is false or uninteresting.

    • Michael,

      First, Block is trying to unpack a contradiction in Polanyi here, so I’d say it’s more Block’s reading of Polanyi than Block’s own take on the world. But then, I think what Block is saying is that for Polanyi, a “self-regulating market system” would be a whole economic system based on exchange that kept itself working smoothly without need for intervention from politics or society.. which right away makes it silly, because of course there are no market systems totally disconnected from politics or society. But that’s kinda the point. Neither Polanyi nor Block is saying that markets have no self-correcting mechanisms (i.e. that supply and demand never equilibrate), but rather that there can never have been a perfectly self-regulating market system, and so you can never claim that a particular political or social intervention in the market broke some actually existing perfectly functioning system. The system was never perfectly functioning, perfectly isolated from politics or social forces, in the first place. The question should always be “how is a particular market articulated with different social and political institutions?”, never “how can we keep politics and society out of our self-regulating market?” since there was no self-regulating market to begin with.

      Does that make any sense? It may be too late for this level of abstraction…

      • Ben

         /  November 5, 2010

        I think I would add that Polanyi says that there have always been markets of some sort, but they are usually an adjunct to the general system of provisioning.

        A market society, one in which markets are ‘self-regulating’ is one which conforms to the neoclassical paradigm, particularly with regards to price. It is only when there is a system of markets, where prices flow through and effect other prices, that an economy is integrated by market exchange. And Polanyi argues that although this is the assumption of neoclassical economics, it is so unusual as to have been uniquely found in the 19th century, when land, labour and money were commodified.

        Contrast that to all the other economic formations known in history, and Polanyi shows that although there was some trade, prices did flow through the whole system as a result. Even where there was trade, prices were usually not set by supply and demand, but by tradition or by regulation. See for example Jewish law that regulates prices.

        So most economic activity was administered rather than self-regulating.

        Polanyi argues that the tools of neoclassical economics are fine for analysing such a system, but that because such a system is unusual, to apply them to the analysis of other economic forms leads to distortion, so that factors which are not actually related to markets (ie. that are not driven by supply and demand) appear as if they are, because there is no way to see anything else.

      • joshmccabe

         /  November 5, 2010

        What does “social intervention” look like?

      • Michael Bishop

         /  November 5, 2010

        Hey Dan,

        I don’t see the contradiction Block claims to have found, so hopefully you can help.
        On the one hand:
        No individual market, let alone entire economic system, is perfect (in any sense of the word), nor can a market remain uninfluenced by social and political factors. (In fact, while distinguishing between economic and social or political factors is sometimes useful for a particular problem, it is no “correct” way to make this distinction.)
        On the other hand:
        One should recognize the self-regulating capacity that does exist in markets before intervening in them.

        For a textbook example. When individuals or companies take on risk and fail, it leads others to be more careful. This should be kept in mind when deciding whether or how the government should assist individuals or companies which suffer losses.

        What is the problem?

        • The problem, according to Block and Block’s reading of Polanyi, is that the people running the show now (as 180 years ago) don’t just believe that markets have some good features, but rather that the whole world should be run according to the principle of laissez-faire, of free markets for everything, of market fundamentalism, whatever you want to call it. This is a “stark utopia” in Polanyi’s words, a utopic version of a society free from political power because the self-regulating market system requires no interventions to work perfectly.

          The market fundamentalists (to use Somers and Block’s term for what Polanyi is talking about) continually argue that if only we actually gave their system a chance – if only we completely disembedded markets from other social and political relationships – we’d be able to achieve a perfect system. Any refuting evidence is argued to be insufficient, because we haven’t gone far enough – there is still some taint of political influence. But as Polanyi and others note – that influence will always be present because you can’t actually disembed a market system entirely. But the idea lives on, Zombie-like (to reference John Quiggin’s new book).

          • Michael Bishop

             /  November 7, 2010

            Block and Polyani may claim that: “the people running the show now (as 180 years ago) don’t just believe that markets have some good features, but rather that the whole world should be run according to the principle of laissez-faire, of free markets for everything.”

            but don’t you think that is hyperbolic? Neither the Democrats nor the Republicans hesitate to intervene in the economy when it is politically expedient. The result is that despite a little deregulation here and there, the long-term trend of government is clearly towards more regulations and a larger share of GDP. You can argue that this is a good trend, and that it should continue, but it is ludicrous to argue that the people in power support laissez-faire economics.

            The position you describe, an extreme market fundamentalism, is stupid, but almost nobody holds it… not even economists who lean libertarian, like Tyler Cowen.

          • Yeah, market fundamentalism is more of a discourse than a true set of adherents (maybe Hayek? Or Rand Paul?). But it’s a powerful discourse. Part of Polanyi’s point (and Block’s, and all the more recent theorists of deregulation) is that deregulation is impossible – you can’t actually disembed an economy. But the force of the ideology can still be there, and people can still really believe it even as they simultaneously do things that are “obviously” counter to laissez-faire. I think actors are complicated and self-contradictory enough to really be market fundamentalists and yet still take state action.

            For other takes on this “neoliberal dilemma”, see Krippner 2007; 2011, Quinn 2010.

  3. Michael Bishop

     /  November 8, 2010

    Dan, Thanks for this conversation… I had another thought. The most libertarian people I know don’t deny that political and social forces affect the economy and vice versa. Rather, they argue that it is because of these links, that we’re better off with a smaller government.

    Some libertarian types might argue: “In an ideal world, the government would make lots of effective regulations and run social programs that accomplish wonderful things. But the unfortunate reality is that government regulations and spending are inevitably driven by special interests. Therefore, since we can’t trust politicians to act with the public interest at heart, we must limit politicians’ ability to do wrong by creating barriers to more regulations and spending.”

    So I don’t really see that the observation that political and economic forces interact tells us anything about the way in which government should intervene in markets.

    • That’s a fair point – even if you accept that government should do somethings, it’s not clear which. Polanyi has some thoughts about what government should be doing (I’m working on a paper, in my head at least, trying to characterize that), but it’s a bit vague.

      But I think getting people to admit that an economy free of government intervention is a nonsense idea would be a good start in reframing the conversation about how we want to shape our economic system, not whether or not we should be doing so. And watch exactly where those libertarians are pointing to when they say government. Do they mean, for example, cops and firemen and whatnot? Do they mean the court system, which is absolutely essential for enforcing property rights? What about anti-trust laws? Etc.

      Polanyi (2001 [1944]: 154) does an excellent job of pointing out the conflict between reliance on self-regulating markets (“economic liberalism”) and belief in the freedom of contract unimpeded by government (“laissez-faire”):
      “Theoretically, laissez-faire or freedom of contract implied the freedom of workers to withhold their labor either individually or jointly, if they so decided; it implied also the freedom of businessmen to concert on selling prices irrespective of the wishes of the consumers. But in practice such freedom conflicted with the institution of a self-regulating market, and in such conflict the self-regulating market was invariable accorded precedence.”

  4. Edwin

     /  November 9, 2010

    “So I don’t really see that the observation that political and economic forces interact tells us anything about the way in which government should intervene in markets.”

    More importantly, at least analytically speaking, its hard to see how the observation that political and economic forces interact tells us anything about the way in which governments *do* intervene in markets.

    What I mean is that the little Polanyi that Ive read is good as a type of clearing away but I’m not sure whether it gives us any positive language to talk about the different types of embedding that happen, i.e. the different ways in which governments intervene in markets. Or is there actually something like this in Polanyi?

    • Ben

       /  November 9, 2010

      Yes, he does offer analytical tools for institutional analysis. He did extensive work on all sorts of economies, ‘primitive’ and modern and archaic.

      Basically he says there are three categories of economic activity: exchange, redistribution and reciprocity. Each of these are usually undertaken in any given economy. Much of the work of modern states is redistributive. Taking money into the centre and redistributing through the society, whether directly through welfare payments or through providing services like education etc.

      • Don’t forget householding!
        Also, Edwin, I think there is something to your point. For example, in The Great Transformation, Polanyi is great at critiquing 19th century economic thought, and at weaving a historical narrative from the 1834 New Poor Law to the collapse of the world economy and the rise of fascism, socialism and the New Deal. But his prescriptions for the future are much more vague.

        I do think there is a fascinating analysis of the enclosure movement that is less often discussed. Polanyi makes a historiographic intervention, arguing that the Stuart and Tudor kings are seen as unsuccessful in stopping the enclosure movement, but that actually they were very successful at slowing it down to make the transition period less disruptive for society. So I think that might point at a way of analyzing government action – look to see how government’s economic actions either do or don’t radically disrupt people’s lives. To the extent that government is “getting in the way” to help smooth transitions, that’s good. If you read the last chapter, “Freedom in a Complex Society”, you get a strong sense that Polanyi understands the tension – how to resist fascism and other collectivist impulses without ignoring “the reality of society”, or in other words, how to promote individual freedom while recognizing that there will always be relationships of power and the need for state action. But what this actually looks like is somewhat unclear.. some form of market socialism, I think.

        On the other hand, I think Polanyi’s story relies really heavily on the exogenous force of the rise of the machine – the introduction of complex machinery is what leads merchants to demand the commodification of everything (or else they won’t bother to invest, not being sure that they can purchase the other necessary factors of production). I think that narrative has some problems.