Lecture 1

Polanyi’s Great Transformation

Emmanuel Teitelbaum

Overview

Polanyi’s Obejctives

• Explain rise of fascism, political instability and war
• Advance an argument about negative effects of economic liberalism
• Provide an alternative vision of the economy’s place in society
• Defend market regulation as not inherently “leftist”

Key Arguments Self-regulating market Birth of liberalism Double movement

The Self-Regulating Market

The “Invisible Hand”

• 19th century economic liberalism
  • Ricardo/Smith
• An economy directed by market prices and nothing but market prices
• Polanyi calls it a “dangerous fantasy”
• Tremendous amount of bureaucracy/governance required to maintain free markets

State of Nature I

• For Smith, our nature is to “truck, barter and trade”
• For Polanyi, we are communal by nature
• Markets have always played some role in society but not the dominant role
• Importance of ethnography
  • Evidence-based approach
  • Not just a rhetorical device

State of Nature II

• Trobriand Islanders (Papua New Guinea)
• People motivated by status more than money
  • Money is a means to and end
• Money not that relevant for distribution
  • Reciprocity
  • Redistribution
  • Householding

Discussion

• What is your view of the state of nature?
• Is it more similar to Karl Polanyi’s or Adam Smith’s?

The Birth of Liberalism

Where Did Liberalism Come From?

• Does not date back to Smith or Ricardo
• These thinkers were ahead of their time
• Emerged out of class politics following industrial revolution

Liberalism is a relatively recent ideology/practice

Elements of Liberalism

• Unfettered labor market
  • Cheap labor for industry
• Gold standard
  • Facilitated trade
  • Kept prices in check
• Free trade
  • Industrialists/traders wanted to access raw materials
  • Facilitated by the gold standard

Liberalism was dopted to suit needs of industry and instability in the international economy Needs: price stability, cheap labor, raw materials

The Gold Standard (1879-1973)

• Pegging the value of the dollar to gold
• Problems
  • Deflationary: could not print money in excess of gold supply
  • Led to dramatic boom-bust cycles
• Reforms
  • 1931: Roosevelt ends gold standard domestically
  • 1971: Nixon ends Bretton Woods

The gold standard was problematic because it prevented the government from undertaking monetary policy to counteract economic downturns

19th Century Panics

Discussion

• Polanyi argues that economic liberalism generates political instability
• Looking at the graph, do you see the connection?
• Can you also find evidence challenging Polanyi’s view?

The “Double Movement”

Small Groups

• Review the concept of the double movement as it is presented in Chapter 11 of The Great Transformation
• What does Polanyi mean by a “movement” and a “counter-movement”?
• Who are the actors involved?
  • Who is affected by this “movement”
  • What does the “counter-movement” entail?

Description of Double Movement

• Movement: expansion of liberalism and self-regulating markets
• Counter-movement: reaction of society against dislocation caused by markets
• New regulations
  • Purpose is to shelter land, labor and the money supply against “devastating effects” of policies used to sustain self-regulating markets
  • Importance of class dynamics: winners and losers

Who are the Opponents of Liberalism?

• Not a unified, hegemonic left or an anti-liberal ideology
• Responses are rather piecemeal
  • Regulation arises in many areas
  • Across many countries
  • In response to similar problems
• Regulation is a result of liberalism’s failure, not its cause

Small Groups

• Can Polanyi’s theory of the “double movement” be applied to contemporary politics?
• Provide at least two concrete examples to support your view
  • Be sure to identify
    • The “movement”
    • The “countermovement”
    • The actors involved, e.g. winners and losers