Thread by @battleforeurope

Fred Block’s intro to Karl Polanyi’s “The Great Transformation” should be read at least a few times a day. Thread: 👇👇👇

The Great Transformation provides the most powerful critique yet produced of market liberalism—the belief that both national societies and the global economy can and should be organized through self-regulating markets.

The logical starting point for explaining Polanyi's thinking is his concept of embeddedness. Perhaps his most famous contribution to social thought, this concept has also been a source of enormous confusion.

Polanyi starts by emphasizing that the entire tradition of modern economic thought, continuing up to the present moment, rests on the concept of the economy as an interlocking system of markets that automatically adjusts supply and demand through the price mechanism.

Polanyi's intent is to show how sharply this concept differs from the reality of human societies throughout recorded human history. Before the nineteenth century, he insists, the human economy was always embedded in society.

The term "embeddedness" expresses the idea that the economy is not autonomous, as it must be in economic theory, but subordinated to politics, religion, and social relations.

He uses the concept to highlight the radical break classical economists made with previous thinkers. Instead of the historical pattern of subordinating the economy to society, their system of self-regulating markets required subordinating society to the logic of the market.

Polanyi writes: "It means no less than the running of society as an adjunct to the market. Instead of economy being embedded in social relations, social relations are embedded in the economic system".

Yet this and similar passages lend themselves to a misreading of Polanyi's argument. Polanyi is often mistakenly understood to be saying that with the rise of capitalism in the nineteenth century, the economy was successfully disembedded from society and came to dominate it.

This misreading obscures the originality and theoretical richness of Polanyi's argument. Polanyi does say that the classical economists wanted to create a society in which the economy had been effectively disembedded, and they encouraged politicians to pursue this objective.

Yet he also insists that they did not and could not achieve this goal. In fact, Polanyi repeatedly says that the goal of a disembedded, fully self-regulating market economy is a utopian project; it is something that cannot exist.

Polanyi argues that creating a fully self-regulating market economy requires that human beings and the natural environment be turned into pure commodities, which assures the destruction of both society and the natural environment.

In his view the theorists of self-regulating markets and their allies are constantly pushing human societies to the edge of a precipice. But as the consequences of unrestrained markets become apparent, people resist; they refuse to act like lemmings marching over a cliff.

The logic underlying this argument rests on Polanyi's distinction between real and fictitious commodities. For Polanyi the definition of a commodity is something that has been produced for sale on a market.

By this definition land, labor and money are fictitious commodities because they were not originally produced to be sold on a market. Labor is the activity of human beings, land is subdivided nature, and the supply of money in modern societies is necessarily shaped by government.

Modern economics starts by pretending that these fictitious commodities will behave in the same way as real commodities, but Polanyi insists that this sleight of hand has fatal consequences. It means that economic theorizing is based on a lie, and this lie places society at risk.

There are two levels to Polanyi's argument. The first is a moral argument that it is simply wrong to treat nature and human beings as objects whose price will be determined entirely by the market.

Such a concept violates the principles that have governed societies for centuries: nature and human life have almost always been recognized as having a sacred dimension. It is impossible to reconcile this sacred dimension with the subordination of labor and nature to the market.

The second level of Polanyi's argument centers on the state's role in the economy. Even though the economy is supposed to be self-regulating, the state *must* play the ongoing role of adjusting the supply of money and credit to avoid the twin dangers of inflation and deflation.

Similarly, the state has to manage shifting demand for employees by providing relief in periods of unemployment, by educating and training future workers, and by seeking to influence migration flows.

In the case of land, governments have sought to maintain continuity in food production by a variety of devices that insulate farmers from the pressures of fluctuating harvests and volatile prices.

In short, the role of managing fictitious commodities places the state inside three of the most important markets; it becomes utterly impossible to sustain market liberalism's view that the state is "outside" of the economy.

The fictitious commodities explain the impossibility of disembedding the economy. Real market societies *need* the state to play an active role in managing markets, and that role requires political decision making.

When state policies move in the direction of disembedding through placing greater reliance on market self-regulation, ordinary people are forced to bear higher costs.

It often takes greater state efforts to assure that these groups will bear these increased costs. This is part of what Polanyi means by his claim that "laissez-faire was planned"; it requires statecraft and repression to impose the logic of the market on ordinary people.

Polanyi's extreme skepticism about disembedding the economy is also the source of his powerful argument about the "double movement".

Because efforts to disembed the economy from society inevitably encounter resistance, Polanyi argues that market societies are constituted by 2 opposing movements—the movement to expand the scope of the market, and the protective countermovement that emerges to resist the market.

Polanyi's thesis of the double movement contrasts strongly with both market liberalism and orthodox Marxism in the range of possibilities that are imagined. Both market liberalism and Marxism argue that societies have only two real choices: market capitalism or socialism.

Polanyi insists that free market capitalism is not a real choice; it is only a utopian vision. He defines socialism as "the tendency inherent in an industrial civilization to transcend the self-regulating market by consciously subordinating it to a democratic society".

Polanyi's arguments are so important for contemporary debates about globalization because neoliberals embrace the same utopian vision that inspired [twentieth-century free-marketeers].

Since the end of the Cold War, they have insisted that the integration of the global economy is making national boundaries obsolete and is laying the basis for a new era of global peace.

As did their predecessors, neoliberals insist that all nations have to do is trust in the effectiveness of self-regulating markets.

This fundamental belief lies behind the systematic efforts of neoliberals to dismantle restraints on trade and capital flows and to reduce governmental "interference" in the organization of economic life.

But Polanyi's fundamental point is that market liberalism makes demands on ordinary people that are simply unsustainable. People will not tolerate a pattern of economic organization in which they are subject to periodic dramatic fluctuations in their daily economic circumstances.

Polanyi believes that to expect that kind of flexibility is both morally wrong and deeply unrealistic. To him it is inevitable that people will mobilize to protect themselves from these economic shocks.

Although he wrote The Great Transformation during World War II, Polanyi remained optimistic about the future; he thought the cycle of international conflict could be broken. The key step was to overturn the belief that social life should be subordinated to the market mechanism.

Once free of this "obsolete market mentality", the path would be open to subordinate both national economies and the global economy to democratic politics.

Polanyi's vision depends on expanding the role of government both domestically and internationally. He challenges the now fashionable view that more government will inevitably lead to both bad economic results and excessive state control of social life.

For him a substantial governmental role is indispensable for managing the fictitious commodities, so there is no reason to take seriously the market liberal axiom that governments are by definition ineffectual.

But Polanyi also explicitly refutes the claim that the expansion of government would necessarily take an oppressive form.

Polanyi argues instead that "the passing of market economy can become the beginning of an era of unprecedented freedom. Juridical and actual freedom can be made wider and more general than ever before; regulation and control can achieve freedom not only for the few, but for all".

Polanyi ends the book with these eloquent words: "As long as [man] is true to his task of creating more abundant freedom for all, he need not fear that either power or planning will turn against him and destroy the freedom he is building by their instrumentality".

[Today t]here is a possible alternative to the scenario in which the unsustainability of market liberalism produces economic crises and the reemergence of authoritarian and aggressive regimes.

The alternative is that ordinary people in nations around the globe engage in a common effort to subordinate the economy to democratic politics and rebuild the global economy on the basis of international cooperation.

For Polanyi the deepest flaw in market liberalism is that it subordinates human purposes to the logic of an impersonal market mechanism. He argues instead that human beings should use the instruments of democratic governance to control and direct the economy to meet our needs.

Polanyi shows that the failure to take up this challenge produced enormous suffering in the past century. His prophecy for the new century could not be clearer. / END