Polanyi and the Neoliberals

Karl Polanyi’s analysis of the philosophy of the liberal economist is still as valid today as it was in 1944 when he wrote his classic, The Great Transformation. Polanyi gives example after example to boost his case that not only are liberal economists arguing from a standpoint that has its underpinning in a complete disregard of material reality. The desire of the liberal economist to promote the self -regulating, laissez-faire form of economic organization (or lack thereof) results in a disconnect from the very effects of the policies he promotes. The liberal argument of the free market shows a disinterest and ignorance of the real world effects of such a policy.

“Laissez-faire had become catalyzed into a drive of uncompromising ferocity” after the maturation of modern capitalism, making an economic movement almost a religious creed (Polanyi, p. 143). This maturation came in England on the heels of repeals in the Poor Laws, extracting the responsibility for the poor from the state and placing it on the poor themselves. The market for labor, the concept of unemployment and the fracturing of the lower class into that of worker and pauper all bubbled up into a stew of economic upheaval. While the state had assumed responsibility for the welfare of all those not in the landed class in the centuries leading up the repeal, once the laws governing this charity of administration disappeared, the unfortunate majority of English citizenry were left on their own. Into the void left by the social contract stepped an axiomatic worship of economic liberalism.

The crystallization of the laissez-faire economic faith led to a belief in the ever-presence of such an economic system. The liberal believes that the presence of emporiums and occasional barter in ancient societies logically assumes the presence of a capitalism unfettered by regulation of state interference. This belief is demonstrably false, as Polanyi makes abundantly clear in his early chapter “Evolution of the Market Pattern”, using example after example of ancient and undeveloped cultures to show the predominant economic system of all ways of life is again and again socialism. The economic liberal’s insistence on the fantasy of ancient laissez-faire is an intentional overlooking of factual history. It is as if the liberal has, upon seeing something antagonistic to his preferred reality, simply gouges out his eyes rather than accept what is there.

“The testimony of the facts contradicts the liberal thesis completely”, and thus the liberal must find another reason than arguing facts to make his point (ibid., p. 151). No matter, the liberal has a straw man to deflect attention from his sputtering, idiotic ramblings. The anti-liberal conspiracy, a supposed cabal of socialists, interventionists and fascists, is alleged to have defeated the beautiful and pure system of capitalism by regulative interference. But, as Polanyi makes evident again and again throughout his work, capitalism’s failure is due not to the interference of regulation, but to the very free market that the liberals complain has been superseded. While Polanyi asserts “the application of the absurd notion of a self-regulating market system would have inevitably destroyed society, the liberal accuses the most various elements of having wrecked a great initiative. Unable to adduce evidence of any such concerted effort to thwart the liberal movement, he falls back on the practically irrefutable hypothesis of covert action” (ibid.). This disconnect with the facts and circular reasoning was remarked upon by a friend the other day, making the case that the free-marketeer has the perfect argument- only an unregulated economy can succeed, and if there are any problems with it in our history, it is because the perfection of libertarian non-intervention has never been achieved. To allege otherwise is to mark oneself as a member of the anti-capitalist plot.

There is one more aspect of the liberal argument to concern this essay- the use of the economic growth of the liberal United States as indication of the legitimacy of the ideals of the free market. Polanyi lays this myth to rest by bringing up a few important and ignored distinctions between America and Europe. Now, Polanyi’s theory of the evolution of capitalism is this: with the onset of the capitalist shakeup of society, there would be “a period of of free trade and laissez-faire, followed by a period of anti-liberal legislation in regard to public health, factory conditions, municipal trading, social insurance, shipping subsidies, public utilities, trade associations and so on” (ibid., p. 153). This was evidenced over and over again, irrespective of the political or religious makeup of the nation that capitalism had attached itself to. The United States, far from being the victim of these same regulations making their way across the Atlantic and stifling free market policies, was instead the victim of finite expansion. With the discovery of the frontier, the American populace turned back to the government for relief from the predations of the capitalist class. To put it another way- the onset of regulative policies within the United States was the natural progression of the situation of the working man, who could no longer look to the west to escape from the powerful grasp of the capitalist. The United States’ experience is far from an endorsement of the philosophy of economic liberalism, instead, it proves exactly why that philosophy is wrong.

Economic liberalism is a creed based not upon facts but upon ideals. The liberal desires to create a system in which the market is completely responsible for its own workings, and furthermore is under the belief this self-regulation will produce the pinnacle of human existence. A self-regulating market, to the liberal, is the zenith of human accomplishment in the financial sphere. Thus, any intervention is necessarily a step backwards. But Polanyi shows that intervention is a logical outcome of free market policy, that once the pendulum swings in the laissez-faire direction, it must necessarily swing back to the more protective. The liberal may respond with a diatribe against imagined enemies, but this is the endgame of any zealotry once proved wrong, to rail at external forces that do not exist rather than admit that one is incorrect.