Re: [OPE-L] Looking a Robinson quote

From: Rakesh Bhandari (bhandari@BERKELEY.EDU)
Date: Thu Dec 23 2004 - 19:18:32 EST

At 3:33 PM +0100 12/23/04, Anders Ekeland wrote:
>I have a very vague feeling that Joan Robinson wrote something like:
>"There is nothing so planned as a free market",
>the interpretation being that markets are not inherently stable and need
>institutional regulation of some sort, like unions, public regulation,
>public intervention of various types.
>Or any other famous economist that have said that markets fundamentally
>needs regulation in order to function in an optimal way, i.e. contrary to
>the dogma of only to intervene when there is market failure (this concept
>being one of the greatest mysticisms ever created by a social theory)
>Anders Ekeland

Karl Polanyi obviously challenged that dogma.

Project 2001: Significant Works in Twentieth-Century Economic History
The Great Transformation: The Political and Economic Origins of Our Time

Karl Polanyi, The Great Transformation: The Political and Economic
Origins of Our Time. 1944. xiii + 305.

Review Essay by Anne Mayhew, College of Arts and Sciences, University
of Tennessee.

Markets to Market to Protection: Karl Polanyi's Great Transformation

Karl Polanyi, once a World War I officer in the Austro-Hungarian
army, a lecturer at the People's University, and a member of the
editorial staff of Vienna's leading financial newspaper, who had been
forced first from his native Hungary and then from Vienna by the
turmoil of revolutions and dictatorships, began The Great
Transformation as an exile in England at the end of the 1930s. He
completed it in the U.S. during World War II. The task he set himself
was to explain the political and economic origins of the collapse of
nineteenth-century civilization, and the great transformation that
Polanyi had lived through in the twentieth. As he saw it, four
institutions were crucial to the economic and political order that
had characterized the North Atlantic Community and its periphery in
the nineteenth century: a balance of political power, the
international gold standard, a self-regulating market system, and the
liberal state. The SRM (self-regulating market) was "the fount and
matrix of the system," the "innovation which gave rise to a specific
civilization" (p. 3).

The Great Transformation is a history of the SRM: of its emergence
from the fact that the Industrial Revolution of the late eighteenth
and early nineteenth centuries took place within a thoroughly
commercial though not yet thoroughly market-organized economy; its
nurture through the efforts of the liberal economists and statesmen
of England in the first decades of the nineteenth century; and
finally its demise as a consequence of the "protective reaction" to
counteract the consequences that the SRM spawned. Two crucial
differences between Polanyi's analysis and that of most other
historians of the economy and of the thought of the nineteenth
century are so important to understanding his work that they must be
made explicit even before their role in the larger argument is
recounted. Polanyi differentiated between economic systems in which
there were markets and the "starkly utopian" SRM of the nineteenth
century. Markets are places or networks in which goods are bought and
sold; they are human interactions organized by price, quality, and
quantity of traded goods and services. The SRM was a society-wide
system of markets in which all inputs into the substantive processes
of production and distribution were for sale and in which output was
distributed solely in exchange for earnings from sales of inputs. The
second crucially distinct feature of Polanyi's analysis is his
argument that the SRM could not survive -- not because of the
distributional consequences that play the major role in Marx's
explanation of the inevitable collapse of capitalism -- but because
the starkly utopian nature of the SRM gave rise to a spontaneous
counter movement, even among those enjoying increased material
prosperity. Society is vital to humans as social animals, and the SRM
was inconsistent with a sustainable society.

Polanyi developed his argument from the work of many economic
historians, historians of thought, anthropologists, and others. The
Industrial Revolution of the late eighteenth and early nineteenth
centuries was "an almost miraculous improvement in the tools of
production," but was also an equally powerful revolution in economic
organization that was in part a consequence of the introduction of
the new machines into an already commercially organized economy, and
in part a social experiment. Up to this point the economies of much
of Western Europe, and certainly of most of Britain, had been quite
thoroughly commercialized: cottage industries, paid agricultural
labor, and thriving trade in towns meant that most people earned
money and used that money to buy the material stuff of life. However,
as Polanyi also noted, control and regulation of markets by
governments and other organizations were also widespread and common.
Markets were controlled; they did not control until the beginning of
the nineteenth century.

In laying out this argument, Polanyi recognized the need to deal
directly with the proposition, itself a creation of late eighteenth
and early nineteenth century British thought, that market
organization of economic activity was the natural state of human
affairs. Polanyi was (counter to what many of his later critics say)
quite well aware that markets and careful calculation of prices by
buyers and sellers alike had long been important parts of many human
societies. By use of logic and of the historical record, Polanyi
developed a schema of "forms of economic integration": that is, forms
of organization for production and distribution, of which the
familiar circular flow of an idealized capitalist economy (the SRM)
is only one. Polanyi developed his schema for characterizing
economies to show that economies could and had been organized in ways
other than through an SRM. He argued that the organization of
production and distribution in many societies had been accomplished
through social relationships of kin or community obligations and
counter obligations (reciprocity) and that other societies, on scales
as small as a band of Kung bushmen or as large of Hammurabi's empire,
or even as large as the planned economy of the Soviet Union, employed
redistributive systems.

In much of Western Europe a combination of redistributive and
reciprocative systems dominated through the end of the feudal and
manorial era, and came to be increasingly supplemented and then
replaced by market trading, the control and encouragement of which
was a major focus of medieval municipal and mercantilist national
governments. (In The Great Transformation Polanyi also described
"householding" as a form of integration, but in later work
reclassified it as "redistribution writ small.")

Then, toward the end of the eighteenth century, and with full force
in the first half of the nineteenth century, two things happened. The
rapidly expanding factory system altered the relationship between
commerce and industry. Production now involved large-scale investment
of funds with fixed obligations to pay for those funds. Producers
were less and less willing to have either the supply of inputs or the
vents for output controlled by governments. The second and closely
related change was the development of economic liberalism as a body
of thought that provided justification of a new set of public
policies that facilitated transformation of land, labor, and capital
into the "fictitious commodities" of a self-regulating system. Land
(nature), labor (people), and capital (power of the purse) were not
in fact produced for sale. Nor did the available quantity of land,
labor, and capital disappear inconsequentially when relationships of
supply and demand produced low input prices. This issue was, of
course, particularly acute in the case of labor and led to the dismal
conclusions of classical economics. Polanyi describes how, in spite
of the threat to social order, the philosophy that came to be called
"laissez faire" was "[b]orn as a mere penchant for non-bureaucratic
methods . . . [and] evolved into a veritable faith in man's secular
salvation through a self-regulating market" (p. 135). Polanyi
describes this evolution of British thought from the humanistic
approach of Adam Smith, who wrote in a time of "peaceful progress,"
through Malthus's acceptance of poverty as part of the natural order,
and on to the triumphant liberalism of the more prosperous 1830s.
What is important is that a set of recommendations about public
policy was transformed into widespread acceptance as the laws of a
natural order.

Polanyi called the continuing tension and conflict between the
efforts to establish, maintain, and spread the SRM and the efforts to
protect people and society from the consequences of the working of
the SRM "the double movement." On one side was a concerted
philosophical and legislative program to establish the SRM from the
enclosures of the 1790s through the Poor Law Reform of 1834 to the
Ricardian Bank Charter Act of 1844 and the repeal of the Corn Laws in
1846. The other side was a widely varying, unorganized set of
movements, legislative reforms, and administrative actions to limit
the effects of self-regulation, from the Chartists through early
legislation to limit the hours and places of work of women and
children, through the growth of labor unions, and through the
emergence of the Bank of England as lender of last resort, to
reimposition of tariffs on foodstuffs, and to the first legislation
presaging the welfare state. As the SRM was impaired in operation,
justifications for international economic cooperation and the liberal
state weakened.

Polanyi's story of the tensions in and collapse of the
self-regulating economies that developed in the first half of the
nineteenth century differs sharply from the story that Marx
anticipated and from the story that Marxian economists have told.
Though Polanyi argues that perception and response to the damages of
the SRM varied by class, and therefore "the outcome was decisively
influenced by the character of the class interests involved," (p.
161) it was not unfair distribution of total output via exploitation
that caused the tensions and ultimate collapse of the SRM system. The
working class did not rise up to overthrow the system. Rather, land
owners and bankers as well as merchants, whose interests were often
threatened by fluctuations in trade, joined workers in seeking
protection. As they got protection, the SRM was "impaired,"
eventually the point of collapse. Increasing protection so impaired
the SRM that it could no longer coordinate the world's economy when
World War I destroyed Europe's balance of power. The struggle to
restore the nineteenth century system by reestablishing the gold
standard destroyed the international financial system.

Dictatorships in some places and more benign management elsewhere
emerged in nationally varying responses to the collapse of the SRM
system. Polanyi was optimistic but uncertain about what the longer
term results of the reaction to the nineteenth century utopian
experiment in economic organization would be, and if he were alive
today his answer might remain uncertain for, to a remarkable extent,
the conflicting sides of Polanyi's double movement still dominate
debates in public policy. As neo-liberalism founded on faith in
secular salvation through the natural emergence of a self-regulating
market system has spread in Central and Eastern Europe and in Asia,
Africa, and Latin America, so too have calls for protection of man,
nature, and national interests. The framework that Polanyi provided
for understanding the collapse of nineteenth century civilization and
the rise of the troubled twentieth remains powerful.

Having said this, however, it must also be said that The Great
Transformation contains some major errors of omission and
interpretation. Most striking to me, as an economic historian of the
United States, is his cavalier and quite wrong assertion that a
double movement did not develop in the U.S. until after 1890 because,
until then, "free land," a ready supply of cheap labor, and a lack of
commitment to keeping foreign exchanges stable meant that a fully
self-regulating market did not exist and no protection was needed.
This is plainly wrong. In addition, some students of England in the
late eighteenth and early nineteenth century quarrel with his
interpretation of the Speenhamland system of subsidies in aid of

However, the strongest and most long lasting criticism of The Great
Transformation has been directed at the passages where he argues that
reciprocative and redistributive forms of integration have been much
more common in human history than self-regulating market systems.
These criticisms invariably focus, however, not on the forms of
integration themselves but on the mistaken proposition that Polanyi
assumed the forms to be founded on different human motives: the SRM
on self-interest and rational calculation and reciprocative systems
on kindness and generosity. (Far less has been said about motives
associated with redistribution, probably because emphasis has been on
the contrast between greed and kindness, and on the proposition that
"you cannot change human nature," with the associated proposition
that the nineteenth century British economy was truly natural.) The
original attack of this kind came, not from economists or economic
historians, but from anthropologists whose disciplinary literature
Polanyi had used in making his assertion. Beginning in the early
1960s, anthropologists, for reasons having to do with changing
political structures in the worlds that they studied and because of
the evolution of thought in their discipline, began to insist that
the primitive and peasant peoples whom they studied were as rational
as any westerners.

These anthropologists -- known as formalists in the debates that
ensued -- found in Polanyi, and in the work of some of his followers
such as George Dalton, a convenient target. They accused Polanyi and
his followers of romanticism about other peoples. Description of
behavior in reciprocative systems was fodder: "The premium set on
generosity is so great when measured in terms of social prestige as
to make any other behavior than that of utter self-forgetfulness
simply not pay" (italics added, p. 46). To anthropologists, who
ignored the crass and rational self-interest implied by the phrase
that I have italicized, this smacked of saying that non-modern,
non-western people were "different" and not self-interested and
rational. They disagreed and by extension dismissed the rest of
Polanyi's argument about reciprocity and the SRM.

Very similar arguments have been mounted by some economists. The
passage most often quoted in ridicule of Polanyi's argument is this:
"previously to our time no economy has ever existed that, even in
principle, was controlled by markets . . . gain and profit made on
exchange never before [the nineteenth century] played an important
part in human economy" (p. 43). Deirdre McCloskey, both in print and
in a heated exchange on the FEMECON list serve, faults Polanyi in a
way that illustrates precisely the difficulty that many readers,
anthropologists and economists alike, have had with the book.
McCloskey says that Polanyi asked the right question, but gives the
wrong answer in saying that markets played no important role in
earlier human societies. As proof McCloskey cites evidence that, the
further away from their source of obsidian the Mayan blade makers
were, the less was the ratio of blade weight to cutting length. To
McCloskey this indicates that "By taking more care with more costly
obsidian the blade makers were earning better profits; as they did by
taking less care with less costly obsidian" (1997, p. 484). Ergo,
Polanyi is wrong, presumably about the existence of other forms of
integration and their importance. To be more careful with harder to
get valuables is certainly rational, but it is not evidence of how
blade makers were provisioned with material means for their
sustenance or joys.

It is one thing to note that people for whom shipment of obsidian was
difficult treated it with care; another to assume that they used it
to produce goods that they sold for profit. Polanyi is in fact
careful to note that the range of human motives varies little across
systems, with the specific form of action that any motive such as
self-interest, generosity, anger, or jealousy may take dependent upon
the system. The economic system does not, however, depend upon the
presence, or absence of the preponderance of any one motive. That
this is perhaps the most difficult point that Polanyi makes is itself
testament to the success of those who created the justifications for
the nineteenth century.

In the years after publication of The Great Transformation Polanyi
and a number of colleagues and students expanded analysis of the
forms of economic integration and produced the collection of essays
published as Trade and Markets in Ancient Empires. Both books present
Polanyi's understanding of what made the economies of the nineteenth
and of the twentieth centuries so different, and with such
far-reaching consequences, Polanyi created a way of thinking about
economies and societies that has had substantial impact on economic
history, anthropology, and the study of the ancient Mediterranean.
The Great Transformation remains important as a highly original
contribution to the understanding of the Western past; it has been
and is important in methodological debates in the social sciences.
Beyond that, as the double movement continues, the book is likely to
remain one of the best guides available to what brought us to where
we are.

Annotated References:

Polanyi, Karl. 1944, 1957. The Great Transformation: The Political
and Economic Origins of Our Time. Boston: Beacon Press by arrangement
with Rinehart & Company, Inc. (The Beacon Press version remains in
print and is the version for which page numbers are given in this
essay. The book has been translated into and published in Hungarian,
Chinese, Japanese, French, German, Portuguese, and Spanish).

Dalton, George. 1961. "Economic Theory and Primitive Society,"
American Anthropologist 63 (Feb.): 1-25. [One of the articles that
sparked the formalist-substantivist dispute in economic anthropology.]

Drucker, Peter. 1979. Adventures of a Bystander. New York: Harper &
Row. [This book contains an account of the remarkable Polanyi family
by a friend who knew them in Vienna.]

Duncan, Colin A.M. and David W. Tandy. 1994. From Political Economy
to Anthropology: Situating Economic Life in Past Societies. Montreal
and New York: Black Rose Books. [Selection of papers from annual
Polanyi Institute Conference.]

Finley, Moses I. 1978. The World of Odysseus . New York: Viking
Press. [Classic application of Polanyi to the ancient world.]

Halperin, Rhoda. 1988. Economies Across Cultures: Towards a
Comparative Science of the Economy. New York: St. Martin's Press.

Mayhew, Anne. 1972. "A Reappraisal of the Causes of Farm Protest in
the U.S., 1870-1900." Journal of Economic History 32 (June): 464-475.
[Though not acknowledged as such, this was an application of
Polanyi's ideas to the U.S. economy.]

Mayhew, Anne. 1980. "Atomistic and Cultural Analyses in Economic
Anthropology: An Old Argument Repeated," in John Adams, editor,
Institutional Economics: Contributions to the Development of Holistic
Economics . Boston: Martinus Nijhoff.

McCloskey, Deirdre N. 1997. "Polanyi was Right, and Wrong." Eastern
Economic Journal 23 (Fall): 483- 487.

North, Douglass C. 1977. "Markets and Other Allocation Systems in
History: The Challenge of Karl Polanyi." Journal of European Economic
History 6 (Winter): 703-716.

Polanyi, Karl, Conrad M. Arensberg, and Harry W. Pearson. 1957. Trade
and Market in the Early Empires: Economies in History and Theory.
Glencoe, Illinois: The Free Press.

Sievers, Allen M. 1974. The Mystical World of Indonesia: Culture and
Economic Development in Conflict. Baltimore: Johns Hopkins University
Press. [Polanyi applied to development issues.]

Schaniel, William C. and Walter C. Neale. 2000. "Karl Polanyi's Forms
of Integration as Ways of Mapping." Journal of Economic Issues 34
(March): 89-104.

Tandy, David W. 1997. Traders and Warriors: The Power of the Market
in Early Greece. Berkeley: University of California Press. [Recent
application of Polanyi to the ancient world.]

Subject : D, W
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Time Period : 6, 7, 8

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