Karl Polanyi wrote a critique of market fundamentalism in The Great Transformation. His critique has relevance to what we observe today. A new book is reviewed in this article that applies Polanyi's critique to the revival of market fundamentalism, and its political ramifications, that we observe today. Polanyi argued that the idea of self regulated market is utopian and that efforts to achieve that ideal would have dystopian consequences. He worried that market instability leads to counter movements that produce political instability. The Great Depression created opportunities for the rise of fascism in much of Europe, and it created the environment for the New Deal in the US. Similarly, today the Great Recession has led to market instabilities that have unleashed reaction from the left and from the right in Europe and in the US. It is difficult to determine the eventual outcome of these movements, but political instability seems to follow from market instability. This raises questions about what government might do to stabilize the economy. Market fundamentalists tend to blame government regulations for market instability. Others argue that the deregulation of the financial system led to the crisis. Polanyi argues that this debate has no meaning. There is no such thing as a market system that operates in the absence of government. The basic question for Polanyi is how the rules that enable the market to function are determined, and who benefits from the rules.
Polanyi's critique of market fundamentalism go well beyond the false issue of regulation versus deregulation. He argues that the concept of a self-regulated market requires a means by which self regulation can be accomplished. This led to the idea of social naturalism. That is, natural forces, like those we observe in the natural sciences, enable the economy to self regulate. Polanyi credits Malthus and Ricardo with the discovery of the natural force that regulate the economy. That principle is scarcity. The basic idea is that leisure is the natural tendency of mankind. That is counterbalanced by the need for subsistence. People will give up leisure for labor as long as wages provide the only means for subsistence. It is the scarcity of the means for subsistence that disciplines the labor force and enables the operation of a labor market based upon the pricing and availability of wages.
The implication of this form of social naturalism is that the discipline of scarcity must be maintained. All forms of social welfare in which government programs supplement wages in order to provide basic necessities violate this rule. For example, unemployment insurance encourages workers to live off of the dole. We have high unemployment because workers refuse to take the available jobs. There is no such thing as a shortage of available jobs. There can be a skill mismatch, but it is assumed that the shortage of jobs is only a temporary phenomenon. Of course, any notion of a minimum wage, or cooperative bargaining over wages levels, violates the basic principle of a free market for labor.
Polanyi believes that markets are necessary for any functioning society. He strongly objects, however, to the evolution of a market economy into a market society. We have a market society when everything is turned into a commodity that should be bought and sold in a market. Market fundamentalists minimize the idea of public goods. Public education should be replaced by private education; Social Security should be privatized; consumer directed healthcare is viewed as the best way to reform our healthcare system because it enables the price system to ration consumption; government operated toll roads ought to be sold to private road operators, etc. etc. etc.
Polanyi's classic critique of market fundamentalism helps us to view current events with a more critical eye. Unfortunately, his book is not easy to read. The book under review in this article helps us to understand the problems of market fundamentalism and to apply Polanyi's critique to our current economic and political issues.
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