Karl Polanyi and social justice
An alternative notion of “economy”
In the introductory note to the book Trade and Market, Polanyi invites the readers to re-examine the notion of the “economy” since many people think that the only way of organizing the livelihoods of men is the market economy. In his own words:
What is to be done, though, when it appears that some economies have operated on altogether different principles, showing a widespread use of money, and far-flung trading activities, yet no evidence of markets or gain made on buying or selling? It is then that we must re-examine our notions of the economy. (Polanyi et al, 1957: xvii).
In order to develop an alternative notion of the “economy”, Polanyi proposed a new theoretical approach to explain the place and role of human beings in social and economic systems. As a result, in his approach, social matters turn out to be anthropological ones and the role of history is highly relevant. As Polanyi wrote:
But a purposeful use of the past may help us to meet our present over concern with economic matters and to achieve a level of human integration, that comprises the economy, without being absorbed in it. (Polanyi et al., 1957: xviii).
Indeed, while considering historical references, Polanyi provided a guide to examine different economies and claimed that empirical observations reveal economic life to be entirely different from that assumed by formal economic analysis (Polanyi et al, 1975: 243-44). Against the methodological approach to economics based on assumptions, premises and deductive reasoning, Polanyi proposed the method of economic anthropology that depends upon principles of economic behavior that are induced from empirical observation.
Evidences of economic life in early societies: reciprocity and redistribution
From the empirical evidence of economic life in ancient times and primitive economies, Polanyi explained the concepts of reciprocity and redistribution. In early societies, men value those material goods that serve the end to promote protection and social standing. The reciprocity principle implied that in some early societies there was an unspoken agreement and, on behalf of it, people produced goods and services for which they could do best and shared them with those people that lived around who also behave alike. All of them contributed according to their abilities to the common welfare, and all shared according to their needs. Their motivation to produce and share was not the economic motive, but the fear of loss of social prestige. The redistribution principle was found in those societies where a chief or leader, after a harvest or a hunting expedition, redistributed the storage to members of his group. The distribution of communal wealth reinforced the social structure where the allocation of the storage indicated status and importance.
Polanyi addressed that although ancient and primitive economies had market places, they were not market economies. In this scenario, daily local markets were merely exchange places operating within the broad system of reciprocity. Local craft and provision markets were isolated by the local authorities from the long distance ones (ports of trade) that only sold items which could not be provided within the local system of reciprocity (Polanyi et al., 1957).
Polanyi’s historical analysis of economic change emphasizes the relevance of ethical principles that support a conception of human beings that is social and whose fundamental motivation is to protect and enhance social standing (Polanyi, 1977). Therefore, his contribution calls for a reflection about the relations between material goods and the behavior of human beings towards the aim of achieving social standing. All societies studied by him – other than market societies – protect themselves by promoting values that foster social standing. Indeed, the understanding of the role of the values that shape human behavior is absolutely relevant to comprehend the ethical challenges in market societies.
The Great Transformation: poverty on large scale
In the analysis of the economic and social transformations of the nineteenth century, Polanyi noted that the emergence of a market economy pushed to the side the old economic and social systems based on reciprocity and redistribution. Since then, the market economy has been characterized as an economic system controlled by prices that determine what, how and how much is produced and how is distributed.
As Polanyi explained, the decisions about production and distribution are guided by the economic motive and they do not aim at achieving common welfare. Indeed, in the market economy there are not social considerations in the decisions about production and distribution.
In his well-known book, The Great Transformation, one key-question is: Where do the poor come from? To answer this question, Polanyi described the birth of the market economy and the emergence of the labor market in nineteenth century Western civilization (Polanyi, 1944:87). After land and money had already emerged as commodities, the commodification of labor – that is to say the commodification of human lives – resulted from land appropriations through enclosures. In this historical setting, the process of social change created by the market economy led to the emergence of poverty on a large scale.
Karl Polanyi described the desolation, dehumanization and degradation of human lives as necessary steps for the emergence and expansion of the labor market in a market economy:
Before the process had advanced very far, the laboring people had been crowded together in new places of desolation, the so-called industrial towns of England; the country folk had been dehumanized into slum dwellers; the family was on the road to perdition; and large parts of the country were rapidly disappearing under the slack and scrap heaps vomited forth from the “satanic mills.” Writers of all views and parties, conservatives and liberals, capitalists and socialists invariably referred to social conditions under the Industrial Revolution as a veritable abyss of human degradation. (Polanyi, 1944: 41).
His analysis also enhanced a critique of some well-known economists and public men such as Townsend, Malthus, Ricardo, Bentham and Burke who considered that the provision of extensive relief to the poor by the government (such as the Poor Laws in England) would negatively affect the rate of economic growth.
Polanyi decisively condemned the hunger of workers as the only way to increase the levels of production in a market economy. In fact, he contended that the “iron” laws governing a competitive market economy are not human laws. It is worth recalling his own words:
The true significance of the tormenting problem of poverty now stood revealed: economic society was subjected to laws which were not human laws. (Polanyi, 1944: 131).
The economy serving society
Beyond the economic laws, Karl Polanyi highlighted the relevance of the ideology of economic liberalism that supports the creation of a market system (Polanyi, 1944: 141). The self-regulation of the market creates the conditions that make the market the only organizing power in the economic sphere, that is to say, the central mechanism for the production and distribution of goods. The market economy dramatically impacts on the social spheres since the spread of market-based values turns to “disjoint man’s relationships and threaten his natural habitat with annihilation.” (Polanyi, 1944: 44). Remembering his own words,
(..) the control of the economic system by the market is of overwhelming consequence to the whole organization of society: 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. … society must be shaped in such a manner as to allow that system to function according to its own laws. This is the meaning of the familiar assertion that a market economy can function only in a market society.” (Polanyi, 1944: 60).
What Polanyi adds to our understanding of the current social and economic challenges is that the aim of the market economy – the economic motive – is not compatible with the goals of peace and freedom. According to him, if people want peace and freedom in the future “they must become chosen aims of the societies towards which we are moving” (Polanyi, 1944: 263). In truth, the aim of social justice needs to promote a human-based and community-oriented economic process supported by values that protect society.
Indeed, the contribution of Polanyi opens up new perspectives to think about an ethical living in contemporary capitalism. If economic and social change is to be authentically human-oriented, it needs to make room for values that favor social standing. The Polanyian ideal of social justice can be summarized in the following words: “The economy has to serve society, not the other way around”.
Polanyi, K. (1944) The Great Transformation: The Political and Economic Origins of Our Time, New York: Rinehart.
Polanyi, K. (1977) The Livelihood of Man, New York: Academic Press
Polanyi, K., ARENSBERG,. H. and PEARSON, H. W. (eds.) (1957) Trade and Market in the Early Empires: Economies in History and Theory, Glencoe, Illinois: The Free Press.
Polanyi-Levitt, K. (ed.) (1990) The Life and Work of Karl Polanyi, Montreal: Black Rose Books.
From: pp.2-3 of WEA Commentaries 9(1), April 2019