Karl Polanyi was born in 1886 in Vienna and he passed away in 1964.
He's not an economist in the traditional sense,
but his book
on economic thinking.
Polanyi was himself a mix of a philosopher,
a historian, an economic historian,
and an anthropologist.
What he did in this book,
is provide a general framework for thinking about
the decline of classical liberal thought,
and the decline of laissez-faire capitalism
from the 19th century.
Polanyi starts the book with a very dramatic sentence,
"19th century civilization has collapsed."
By 19th century civilization,
he was referring to Europe,
and he had in mind four particular components:
The balance of power system between competing nation states,
the gold standard,
the idea of self-regulating markets,
and the notion of the liberal night-watchman state,
which protected property rights
but otherwise would let a kind of capitalism run its course.
This book was published in 1944,
so perhaps it's not surprising that it's so pessimistic about
the course of European history.
But Polanyi saw pretty clearly that
some previous world order really had passed on
and probably was not going to return anytime soon.
What were, for Polanyi, the culprits?
Well,
It has in it a lot of history, and also a lot about foreign policy.
But let's consider just three of Polanyi's culprits.
The first is risk.
The notion that in a self-regulating market economy,
individuals are exposed to too much risk on their wages,
on their capital returns,
on their rents,
on their business prospects.
Polanyi saw a self-regulating market as
bringing too much risk upon most individuals in a society.
The second culprit can be seen as deflation.
Polanyi understood that the gold standard knit together most of Europe
in a network of self-regulating trade relations,
and a self-regulating monetary order.
It prevented rampant inflation.
But at the same time, under the gold standard,
there were periodic financial crises,
credit would collapse,
money supplies would fall,
economic activity would slow,
and there would be deflationary pressures on economies.
These deflationary pressures were also a source of risk,
and furthermore,
they tended to make politics in the deflationary economies
more brutal, or more oppressive, or more liberal.
The third culprit, which Polanyi wrote about, among others,
is this idea that a self-regulating market
annihilates its underlying social context.
Part of Polanyi's other works were written
from an anthropological point of view,
and he claimed that the market was
a relatively recent human invention,
and that before markets were so prominent in human affairs,
that social orders had their own regulating principles
which were quite distinct from those of market economies.
By no means do all historians and anthropologists agree
with this point of view.
But to return to Polanyi's perspective,
he saw this underlying social context
as important as helping to give rise
to a market order, to a liberal trading order,
but that the market itself would become so rampant, and so commodified,
and so, commercialize human activity,
that eventually the self-regulating market
would do away, or weaken, this underlying social context.
And thus, their would be a kind of cultural contradiction to capitalism,
and an economic contradiction to laissez-faire capitalism,
arising from excess risk, deflationary pressures,
and this annihilation of the underlying social context.
It's a very complex, nuanced historical argument,
but those are just some of it's main features.
Polanyi was mostly a diagnostician, and he was not, in this book,
concerned with producing proposals for concrete reform.
He simply wanted to understand
why European history had taken the course that it had.
And he saw the sage of laissez-faire capitalism as very much over.
Polanyi has proved an extremely influential thinker.
Perhaps his book
can be compared to a book by Friedrich A. Hayek,
Road to Serfdom
published around the same time.
Individuals from conservative and libertarian points of view
have looked to Hayek's work as a kind of patron saint,
a kind of explanation for what went wrong.
And individuals from left-wing, progressive,
or social democratic point of views
have read Polanyi's work along the same lines,
as a kind of overall treatise or tract on where we came from.
A key question looking forward which, of course, is still debated,
is what about our New World Order?
Have we overcome the mechanisms of instability identified by Polanyi
by having these social democratic welfare states?
Or have we just, in some way,
rebuilt the Old World Order
on somewhat new principles.
But perhaps a New World Order also has some cultural
and economic self-contradictions,
and that may disappear as well.
This debate continues to go on,
but one thing seems pretty sure,
Polanyi's influence has risen,
and
is still a book which people read.