An earlier post by Mady provided an introduction to Polanyi’s classic work The Great Transformation. This book is crucial to understanding both HOW and WHY we need to re-structure economic education today. Unfortunately, the book is quite complex, a bit dry and technical at times, and consequently hard to follow. Although many leading economists have praised it, I did not see any glimmer of understanding of its central arguments anywhere in orthodox arena. Even among heterodox economists, it is not frequently mentioned or cited.
Mostly for the purposes of understanding it for myself, I set out to write a compact summary of the key arguments in the book. The central theme of the book is a historical description of the emergence of the market economy as a competitor to the traditional economy. The market economy won this battle, and ideologies supporting the market economy won the corresponding battle in the marketplace of ideas. I quote from the introduction of my article:
The market economy has become so widespread that it has become difficult for us to imagine societies where the market does not play a central role. Yet, for reasons to be clarified in this article, this is the need of the hour. The unregulated market has done tremendous damage to man, society and nature. Bold, imaginative steps to find alternative ways of organizing economic affairs in a society are essential to our collective survival.
Polanyi’s arguments are complex and remain unfamiliar to majority of economists. They run
counter to received wisdom, and are directly opposed to what is taught
about economics in leading universities. They are summarized in FIVE points listed below.
From the FIFTH point, it follows that acquiring and spreading a correct understanding of the limitations and failing of markets is essential to creating a better society, based on more humane values than those generated by market societies where everything is for sale.
Firstly, markets are not a natural feature of human society. Nearly all societies other than the modern one we live in used different, non-market mechanisms to distribute goods to members. Our society is unique in having made markets the central mechanism for the production and distribution of goods to its members.
Secondly, market mechanisms conflict with other social mechanisms and are harmful to society. They emerged to central prominence in Europe after a protracted battle, which was won by markets over society due to
certain historical circumstances peculiar to Europe. The rise of markets caused tremendous damage to society, which continues to this day. The replacement of key mechanisms, which govern social relations with those compatible with market mechanisms, was traumatic to human values. Land, labour and money are crucial to the efficient functioning of a market economy. Appropriating the functions of these alters and harms central social mechanisms governing human relations.
Thirdly, certain ideologies, which relate to land, labour and money, and the profit motive are required for efficient functioning of markets. In particular, both poverty, and a certain amount of callousness and
indifference to poverty are required for efficient functioning of markets. Poverty is, in a sense to be clarified, a creation of the market economy. The sanctification of property rights is another essential feature of markets. Thus existence of a market economy necessitates the emergence of certain ideologies and mindsets which are harmful to, and in contradiction with, natural human tendencies.
Fourthly, markets have been fragile and crisis-prone and have lurched from disaster to disaster, as amply illustrated by the current and ongoing global financial crisis of 2008. Polanyi prognosticated in 1944 that the last and biggest of these crises in his time, World War II, had finally killed the market system and a new method for organizing economic affairs would emerge in its wake. In fact, the Keynesian ideas eliminated the worst excesses
of market-based economies and dominated the scene for about thirty years following that war. However, the market system rose from the ashes and came to dominate the globe in an astonishing display of power. This story
has been most effectively presented by Naomi Klein (2008).
Fifthly, market economies require imposition by violence – either natural or created. As noted by the earliest strategists, deception is a crucial element of warfare. One of the essential ingredients in the rise of markets has been a constant battle to misrepresent facts, so that stark failures of markets have been painted as remarkable successes. There are a number of strategies commonly used to portray an economic disaster as progress and
development. Without this propaganda markets could not survive, as the forces of resistance to markets would be too strong.
The full article can be downloaded from the link below:
“The Rise and Fall of the Market Economy,” Review of Islamic Economics, Vol. 14, No. 2, 2010, pp. 123–155