Karl Polanyi, the economic historian and social scientist (1886-1964), demonstrated the historical pattern of the market evolution. He stated that the pre-modern economies were based on the principles of reciprocity, redistribution, and householding economic order function within the social order. Nevertheless, with the emergence of the mercantilist class worldwide and particularly in the Western Europe, the self-regulating market led to the ‘disembedding’ of the economy from the society. Thus, separating the society into economic and political spectrums. Consequently, the commercialization and commodification of all the elements within the market, even made the non-commodities such as labor, land, and money considered as commodities. The counter-moves to the self-regulated market rose from the social forces to re-regulate the market and compensate the socioeconomic and political damages caused by the market-based economy. This cyclical or spiral phenomenon is conceptualized by Polanyi as the ‘double movement’ (Cox, 367).
In comparison, I will focus on his contemporary, the economist and social philosopher, Friedrich Hayek (1899-1992). He was the founder of Mont Pelerin Society, which was a think tank community whose aim were to promote the liberal economic thoughts. Hayek believed that the market is a spontaneous social order that is fundamentally based on the mutual benefit. He believes that lack of demand is not a problem, but it is the regulated market by the state causes distortion in the equilibrium of the supply and demand through laws and promotion of ‘natural interest rate’. Such interventions in the market will lead to dictatorship sometimes. To Hayek, the state practices must be narrowed down to the enforcement of the rule of law in terms of protection of private property, private, and criminal laws. It is up to us to make rules based on ‘universal justice’ and ‘natural economic’ interplays.
Polanyi’s explanatory theory not only demonstrates the international political economy (IPE) through traditional historical materialism approach using some empirical methods, but one can explicitly depict the flaws of the market-based economy and implicitly envision his prediction for the future, and how to avoid the destruction that the capitalist hegemony brought to the world in the 20th century. He states that in the pre-modern era until the emergence of mercantilist capitalism, regulation and market evolved together. He famously claimed that, “There was nothing natural about laissez-faire; free markets could never have come into being merely by allowing things to take their course…The road to the free market was opened and kept open by an enormous increase in continuous, centrally organized and controlled interventionism.” (Lisa, 182)
Moreover, all productions within the self-regulating market are for sale in the market, and all incomes originate from the sale. Therefore, there will be market for all elements of industry including labor, land, and money (pp. 71-72). During the feudalist and guild systems, labor and land were included within the social organization, and money had not become a sufficient mean of purchasing power. Thus, Labor and land were protected by the traditional institutions and national statutes (pp. 72-73). By 1790, such privileges and protections from the market were abolished (pp. 74). Polanyi claimed that similar to the transition of the political systems to democracy, the self-regulating market followed by the total transformation in the society structures and such economy can only function in a market society where all the elements of industry including labor, land, and money are all commercialized or commodified (ibid). The empirical definition of commodity is object produced for sale in the market, and the empirical definition of market is the actual exchange between the market forces within one big market (pp. 75). While none of Labor ‘human’, land ‘nature’ and money ‘as a purchasing power, which comes into being through the state’s financial and banking system, can be produced, yet they are included within the demand and supply, and being organized within the market to be bought and sold (pp. 75-76).
The irrational believe in the spontaneous progress due to the self-regulated market pushed the people in England and the world into abyss of unlimited social change, in which the human society would have destructed itself if there were not counter-moves by the social forces against the world’s commodity, capital, and currency markets during the gold standard era to return back to market regulation and social protection (pp. 79-80). To take the spacetime of writing his book into an account, one must realize that Polanyi lived during the shifting points of gold standard ‘globalization’ and the rise of nationalism and protectionism, and consequently the two devastating World Wars which he was aware of and observed the fact that the unregulated economies brought humanity into the edge of ‘annihilation’.
On the other side, Hayek supported the liberal and unregulated economy. Considering his time publishing the book (1966), one can comprehend why Hayek departed from empirical analysis to some extent and instead chose a more normative approach by demonstrating the IPE in a philosophical manner. The late 1960s was the peak and at the same time the decline of the Bretton Woods era which was a combination of international economic integration ‘globalization’ with the nation-state orientation in which states’ interventions in economies were profound. Therefore, Hayek tried through his observation to criticize the existing non-liberal economy in his time, and at the same time to purge liberal economy from its catastrophic historical context by making distinction between the theoretical or conceptual Liberalism and the existed Liberalism. The former is the path towards restraining governments from its oppressive mechanisms and realization of the individuals’ liberty. The latter is a crusade to achieve unlimited power of the majority which is anti-liberalism. The first one is based on abstract rationalism in accordance to traditional development, while the second only relies on constructivist rationalism and defies all traditions (pp. 601).
Therefore, Liberalism to Hayek is the ‘discovery’ of the self-generating or spontaneous order in social affairs (pp. 602). Catallaxy is a spontaneous order of the market that is purpose-independent, while the economy in its rigid meaning is an organized purpose-oriented market by the government (pp. 603-605). In such Catallaxy, government has no coercive power or monopoly, but there exists only to protect the economy and enforce the rule of law that is based on ‘what not to do’, instead of ‘what to do’. Meanwhile justice is universal, such liberal just conducts and laws will be accepted by different nations and states because they are originated from a spontaneous and purposeless order (pp. 606-608). As Immanuel Kant once said, “The starry heavens above me and the moral law within me.” (Gaarder, 267)
On the other hand, organization and purpose-oriented laws and authorities will strive for the formation of concrete order and dictatorship through concepts like ‘just price’, ‘just remuneration’, and ‘just distribution of incomes’. Nonetheless, throughout history these just criteria could never be found or be set because the human society was interpreted as an organization rather than a spontaneous order (pp. 609-611). While in the Catallaxy, everyone has already agreed upon such purposeless and spontaneous order, then whatever the outcome is ‘good or bad’, it is still a fair game and trade off (pp. 614). Finally, he claims that in the regulated economies, governments tend to support monopolies and themselves would turn into monopolistic entities that will only bring crises to the markets and societies ‘as a whole’ (pp. 615).
In conclusion, on the one hand Hayek believed in the extension of Kant’s philosophy of rationalism and empiricism to Schiller’s romanticism in which we have to set everything on its natural harmonious wheel, and it is liberalism that can achieve the ‘Three Great Negatives’: peace, justice, and liberty which I prefer to call them the ‘three almost impossible positives’. On the other hand, Polanyi had observed and analyzed two hundred years of the rise and fall of global capitalism, and came up with the ‘double movement’ theory which history itself may prove it as a fact that the forceful interplay between self-regulated economy and social forces is undeniable.
Bachelor of Arts in International Studies and Law at the American University of Iraq, Sulaimani
Studies Master’s degree in Global Political Economy and Development at University of Kassel, Germany
Hayek, F. A. "THE PRINCIPLES OF A LIBERAL SOCIAL ORDER." Il Politico 31, no. 4 (1966): 601-18.
Polanyi, Karl. “The Great Transformation: The Political and Economic Origins of Our Time.” New York: Farrar & Rinehart, (1944): 71-80.
Chase-Dunn, Christopher, Peter Taylor, Giovanni Arrighi, Robert Cox, Henk Overbeek, Barry Gills, Andre Gunder Frank, George Modelski, and David Wilkinson. "Hegemony and Social Change." Mershon International Studies Review 38, no. 2 (1994): 361-76. doi:10.2307/222747.
Gaarder, Jostein. “Sophie’s World.” Weidenfeld & Nicolson, (2015): 267-283.
Martin, Lisa L. "Polanyi's Revenge." Perspectives on Politics 11, no. 1 (2013): 177-86. Accessed April 14, 2020. www.jstor.org/stable/43280696.