The Return of Karl Polanyi

Right from the start of the book, Polanyi attacks market liberalism for what he calls its “stark Utopia.” Conservatives had long deployed the “utopianism” epithet to discredit movements of the left, but Polanyi was determined to turn the tables by showing that the vision of a global self-regulating market system was the real utopian fantasy. Polanyi’s central argument is that a self-regulating economic system is a completely imaginary construction; as such, it is completely impossible to achieve or maintain. Just as Marx and Engels had talked of the “withering away of the state,” so market liberals and libertarians imagine a world in which the realm of politics would diminish dramatically. At the same time, Polanyi recognizes why this vision of stateless autonomous market governance is so seductive. Because politics is tainted by a history of coercion, the idea that most of the important questions would be resolved through the allegedly impartial and objective mechanism of choice-driven, free-market competition has great appeal.

Polanyi’s critique is that the appeal has no basis in reality. Government action is not some kind of “interference” in the autonomous sphere of economic activity; there simply is no economy without government. It is not just that society depends on roads, schools, a justice system, and other public goods that only government can provide. It is that all of the key inputs into the economy—land, labor, and money—are only created and sustained through continuous government action. The employment system, the arrangements for buying and selling real estate, and the supplies of money and credit are socially constructed and sustained through the exercise of government’s coercive power.

In this sense, free-market rhetoric is a giant smokescreen designed to hide the dependence of business profits on conditions secured by government. So, for example, our giant financial institutions insist that they should be free of meddlesome regulations while they depend on continuing access to cheap credit—in good times and bad—from the Federal Reserve. Our pharmaceutical firms have successfully resisted any government limits on their price-setting ability at the same time that they rely on government grants of monopolies through the patent system. And, of course, the compliance of employees with the demands of their managers is maintained by police, judges, and an elaborate structure of legal rules.

Link here.