Paper presented at the 12th International Karl Polanyi Conference ‘Karl Polanyi and Latin America’,
November 8-10, 2012, National University General Sarmiento, Argentina. A revised version of the
paper has been published under the title The Belief in Economic Determinism, Neoliberalism, and the
Significance of Polanyi’s Contribution in the Twenty-first Century in: International Journal of
Political Economy, vol. 41, no. 4, 2012-13.
The Meaning of Polanyi’s Contribution in the Twenty-first Century
Claus Thomasberger
1
The Relevance of ‘The Great Transformation’ Today
How can we explain that Karl Polanyi’s book ‘The Great Transformation’ is more relevant
today than ever before? How is it possible that the analysis of a civilization which
disintegrated more than half a century ago has lost nothing of its importance? The first
sentence where he asserts: “Nineteenth century civilization has collapsed. This book is
concerned with the political and economic origins of this event, as well as with the great
transformation which it ushered in”, 1 seems to indicate that the book is primarily a treatise on
the history of the nineteenth century. But this interpretation may be misleading. My short
answer to the question of the lasting interest in the book is that it is not a historical work. The
most important insights in ‘The Great Transformation’ extend beyond an analysis of the
‘civilization of the nineteenth century’. Polanyi himself points in this direction when he
underlines that he “dwells on scenes of the past with the sole object of throwing light on
matters of the present”. 2 What does this statement mean? What is the core idea of ‘The Great
Transformation’? What are the insights which go beyond the understanding of a lost
civilization?
‘The Great Transformation’ is a rather complex book in which several trains of thought are
interwoven. Therefore, I will not deny that different answers to these questions may be
possible. Nevertheless, I am convinced that the insight which makes Polanyi’s analysis a
ground-breaking work is that he systematically challenges what in later years he calls the
1
Polanyi 1944/2001, 3.
2
Polanyi 1944/2001, 4.
2
‘belief in economic determinism’. 3 The crucial message of the book is: The nineteenth
century civilization was determined by economic laws because people believed in the
existence of such laws. There were, there are and there can be no economic laws as such.
What made the civilization of the nineteenth century an economic civilization was the belief
in the existence of economic laws.
Polanyi is well aware of the fact that this insight has consequences which go far beyond the
interpretation of the civilization of the nineteenth century. The belief in economic
determinism was not simply a misconception. The belief was real; it was an integral part of
the social reality without which that society would not have been able to exist. If this is true,
the juxtaposition of being and thinking, of material life-process and consciousness – tacitly
taken for granted by the conventional theory of knowledge – cannot be maintained. 4 Polanyi
realizes that if there is no social and economic reality which is independent of the
fundamental ideas, beliefs and world views of the acting persons, all forms of deterministic
concepts in the social and the economic sciences are challenged.
Polanyi’s rejection of the assumption that society encompasses a world of objective facts,
which are independent of theoretical beliefs and visions, is of outmost importance for a
second reason. By breaking with the ‘scientific world view’, Polanyi anticipates a change in
approach which, from an opposite point of view, the liberal authors also accomplish during
the interwar period. The outcome, neoliberalism, becomes politically relevant after the 1970s.
In other words: Polanyi’s contribution offers the key not only to the analysis of the market
mechanism and other ‘objectivations’, but also to a critical understanding of neoliberalism.
Karl Polanyi was already developing his ideas in Vienna in the years which followed
World War I. In order to understand the core idea of ‘The Great Transformation’ and its break
with nineteenth century thinking, we must include in our discussion some of his early papers,
written in Vienna. In the following section I will start with Polanyi’s critique of the belief in
economic determinism, and the difference between his own approach, the classical political
economy of the nineteenth century and Marx. The third part will deal with the question: What
are the consequences, if fictitious ideas ‘rule the world’? At the center of part four is the
reconstruction of the belief in economic determinism by the protagonists of the neoliberal
3
Cf. the homonymous article Polanyi 1947.
4
Cf. Polanyi undated II/2005.
3
credo. In the last section I will come back to the question of what we can learn from Polanyi’s
analysis today.
2
On Belief in Economic Determinism
The crucial experience which shaped Polanyi’s theoretical ideas more than anything else is
without doubt the First World War. Immediately after the War, he published an article with
the title ‘The crisis of our vision of the world’ in which he describes the pivotal point: “The
breakout of the World War has been the turning point for all capitalist and therewith Marxist
thinking. … The omnipresent economic interests … proved to be bare economic superstition
and blank chimera. It became clear that not the material world, but the idea of this material
world is the driving force, however wrong and erroneous this idea may be”. 5 And in the
Behemoth-manuscript he comes back to the same issue, stating that: “If it is not self-interest
which rules the world, but my opinions and ideas about what my self-interest is, then opinions
and ideas rule the world”. 6 The War (and the Bolshevik Revolution in Russia 7) allowed him
to refine his criticism of the sociological and economic theories which had dominated the
nineteenth century.
Polanyi never accepted the naturalist viewpoint which is implicit in the reasoning of the
classical political school of Ricardo and his followers. Even if the Speenhamland Law may
not have exerted the strong influence on the elaboration of economic theories at the beginning
of the nineteenth century which he supposes, there can be no doubt: Liberal political economy
of the nineteenth century believed in the reality of economic laws which were beyond human
control. The laws of economics were not only regarded as laws which were similar to natural
laws. The supposition was that they also could be derived directly from the laws of Nature. It
is sufficient to compare Ricardo and his followers with Adam Smith. Smith was still part of
the eighteenth century. He considered political economy a human science which should deal
with that which was natural to man. Ricardo, instead, relies directly on the laws of Nature.
Smith used notions such as ‘natural progress of opulence’, ‘natural price’, ‘natural freedom’,
5
Polanyi 1919, 461; translation by the author.
6
Polanyi undated I/2005, 198; translation by the author.
7
Recall Gramsci’s comment where he characterizes the Bolshevik Revolution as “the revolution against
Karl Marx's Capital“, because it “consists more of ideologies than of events” (Gramsci 1917).
4
‘natural rates of wages, profit, and rent’ so as to indicate the evolution of human civilization.
Ricardo employs the same terms so as to demonstrate that the economic laws are beyond
human command.
The shift is already noticeable in the writings of some French authors such as Garnier,
Canard, and J.B. Say. In England, Thomas R. Malthus and David Ricardo contribute most to
the change in direction toward a more deterministic approach. Obviously, the industrial
revolution and the problem of poverty existing alongside increasing wealth necessitate an
explanation. Economic science turns to the laws of Nature in order to make sense of the
market mechanism. Poverty is explained as the result of laws which are not human laws. The
Malthusian law of population is ultimately grounded in two biological laws, the fertility of
man and the fertility of the soil. Ricardo, accepting the framework, builds the law of
distribution, ‘the principal problem in Political Economy’, 8 directly on the inexorable laws of
Nature. In the name of political economy, Ricardo fights for a reform of the monetary system
and for the abolishment of the Speenhamland laws. As a member of the House of Commons
he advocates free trade and the abolishment of the Corn Laws. But he is convinced that the
economic laws which pure science has revealed are independent of any kind of theoretical
dispute or political intervention, and that no government and no political action can abolish
the ‘iron law of wages’, the law of accumulation, or the law of the falling rate of profit.
Polanyi developed his approach while contrasting his own ideas with the ‘early writings’
of Marx. “Men are the producers of their conceptions, ideas, etc.”, Marx and Engels state in a
famous passage of the ‘German Ideology’. But they then qualify their assertion; and opposing
consciousness to the actual life-process, they conclude: “Morality, religion, metaphysics, all
the rest of ideology and their corresponding forms of consciousness, thus no longer retain the
semblance of independence. They have no history, no development; but men, developing their
material production and their material intercourse, alter, along with this their real existence,
their thinking and the products of their thinking. Life is not determined by consciousness, but
consciousness by life”. 9 Marx and Engels recognize that man builds society, that man creates
his consciousness, and that man makes history. They are therefore well aware that social and
economic laws have to be grounded in human behavior and reasoning. The latter are different
in character from all natural laws insofar as they express relations between persons. From this
8
9
Ricardo 1817/1984, Original Preface, 3.
Marx/Engels 1845-47/2000, 6.
5
point of view Marx and Engels criticize not only the idealist philosophy on the one hand and
materialism on the other, but also classical political economy.
Polanyi agrees with Marx’ claim that the self-regulating price mechanism, economic laws
and other ‘objectivations’, “are in their most essential form nothing more than the result of
certain relationships in the human world. They are results of relations between persons”. And
he, too, adopts a critical perspective: “The relations of living persons towards one another are
the only real relationship in society: those apparently real relationships can theoretically be
dissolved into human relations. Under capitalism, this dissolving can only happen in the
mind: it remains a theoretical insight of sociology. To transform it into practice, to put it in
reality, is the task of socialism.” 10 Polanyi also accepts Marx’ idea that human freedom
pretends oversight, understanding, and self-determination. The market mechanism is
incompatible with human freedom because it produces a social reality which man has no
control over. The self-regulating market system resembles a man-made prison in which a
blind mechanism domineers over its creators. It produces a reality in which man does not rule
the economy, rather the economic laws control his destiny. In other words: Human freedom
requires overcoming the self-regulating market mechanism.
But there is a point where Polanyi departs from Marx. The reason is that Marx, instead of
challenging economic determinism, asks for a justification for treating social laws in a way as
if they were laws of nature. And, more than that, Marx pretends to offer such a justification:
Reification and fetishism are the keywords. 11 In the bourgeois world, but only there, social
relations assume the shape of a relation between things. In the ‘German Ideology’ he ascribes
reification to the level of division of labor and private property. Later, in the ‘Capital’ he
develops the ideas further and refers to the commodity form of the labor product. Marx
adheres to economic determinism because, he assumes, in the bourgeois world man is caught
in a fictitious world of things and economic interests.
It is important to understand that, by providing a justification, Marx criticizes and, at the
same time, reinforces the belief in economic determinism and the interpretation of economic
categories and laws in terms of facts which are outside human control. On the one hand, he
10
11
Polanyi undated III/2005, 141; translation by the author.
Not by chance Polanyi considers the ‘theory of the fetish character of commodities … as the key to
Marx’ analysis of the capitalist society”. (Polanyi undated IV/2005, 260).
6
criticizes capitalism because the reification of social relations is incompatible with a free
society. But, on the other hand, he believes in the validity of economic laws and reified
categories within the bourgeois society. 12 Not human ideas, but the economic laws and the
contradictions of the bourgeois society are regarded as the driving forces of capitalism.
Marx recognizes the interdependency between material life-process and consciousness. He
recognizes that the bourgeois society supposes a world view, in which economic deterministic
ideas prevail and the ‘categories of bourgeois economy’ are taken for granted. Nevertheless,
Marx remains part of the nineteenth century insofar as he accepts the assumption that the
economic laws determine the faith of the bourgeois society. This is the point where Polanyi
cuts his own path. He does not accept any justification for considering social laws as laws
which are beyond man’s control. If man is the originator of society, the social institutions –
self-regulating or not – are the outcome of human reasoning and acting. If we can criticize
reification, we admit that not economic laws as such, but man’s faith in economic laws is the
problem. In other words: Polanyi insists that it is not economic determinism, but the ‘belief in
economic determinism’, that is the key to understanding not only the bourgeois world, but
social institutions in general. He summarizes his position by stating: “Institutions are
embodiments of human meaning and purpose”. 13 Polanyi does not deny that human
consciousness, ideas, and social theories may be limited by the technological knowledge and
by the ‘relations of production’, but maintains that they are not determined (not even in last
instance) by objective (material) factors. If it is correct that under bourgeois conditions prices,
markets and economic laws are reified categories, the reason is not the unique social character
of the labor which produces commodities, but the peculiar vision of the world which classical
political economy brought about and which considered the laws of economics beyond human
influence.
The awareness that, not economic determinism itself, but the belief in economic
determinism, shaped social reality in the nineteenth century is a liberating insight. It is
liberating because it becomes evident that ‘economic laws’ do not determine the faith of
society, but that man has the chance to create its own destiny. Economic determinism
12
“The categories of bourgeois economy … are forms of thought expressing with social validity the
conditions and relations of a definite, historically determined mode of production” (Marx 1867/87, Chapter
1, Section 4, The Fetishism of Commodities and the Secret thereof.).
13
Polanyi 1944/2001, 262.
7
becomes visible for what it is, a superstition from which man can free himself. The end of the
belief in economic determinism opens the chance of “a new, up to now unimagined degree of
freedom”. 14
The insight that there is (and there can be) no social reality which is not grounded in
human motives, expectations, and beliefs has some far-reaching consequences which would
deserve a detailed discussion. Such an examination would be beyond the scope of this
paper. 15 I will therefore limit myself and enumerate some aspects.
-
Firstly, and in opposition to the theories of the nineteenth century, it suggests that there is
a fundamental difference which distinguishes economic and social sciences from the
natural sciences.
-
Secondly, the social sciences cannot ignore that their object of investigation, as
distinguished from the object of the natural sciences, is a result of human ideas and action,
which are not independent of theoretical beliefs, world views and interpretations. The
apple falls from the tree whatever man thinks about the law of gravity. But the
development of stock prices is not independent of the theories which the actors apply
when they form expectations and, based on these beliefs, buy and sell company shares.
-
Thirdly, the social scientist or political economist is not only an observer, but he is also a
participant in social life. He does not give account of a reality which exists independent of
his theoretical considerations, but influences the beliefs and the behavior of the social and
economic actors actively.
-
Last but not least, the correspondence vision of truth loses its basis. At least in the realm
of social theory proper, there is (and can be) no theoretical conjecture which simply adapts
to the ‘facts’, which describes ‘facts’, and which gives a true picture of the ‘facts’ without
influencing the ‘facts’ at the same time.
3
What Are the Consequences if Fictitious Ideas ‘Rule the World’?
Polanyi is one of the first authors who, in contraposition to the political economy of the
nineteenth century, underlined the crucial role of scientific ideas and opinions, but he is not
14
Polanyi undated III/2005, 142; translation by the author.
15
For a discussion of these questions cf. Thomasberger 2012.
8
the only one to do this during the interwar period. I am not only thinking of the authors which
can be considered the protagonists of the ‘neoliberal credo’. (We will come back to their
contributions later on). You may bear in mind the sharp criticism of conventional economics
by Frank Knight. Or you may recall John M. Keynes’ famous statement at the end of the
‘General Theory’ that “the ideas of economists and political philosophers, both when they are
right and when they are wrong are more powerful than is commonly understood. Indeed, the
world is ruled by little else … I am sure that the power of vested interests is vastly
exaggerated compared with the gradual encroachment of ideas. … soon or late, it is ideas, not
vested interests, which are dangerous for good or evil“. 16
Indeed, Keynes is an interesting case in this context because, by highlighting the relevance
not only of political decisions, but also of the ‘expectations’ of entrepreneurs and households,
he recognizes tacitly the importance of economic theories for the functioning of the market
mechanism for investment, for effective demand and for employment. Surely, Keynes would
have agreed that the theories of the classical school were fictitious and utopian. But he does
not think through the implications of this insight for the understanding of the market system.
Instead, he limits himself to a discussion of some psychological aspects of the ‘state of
expectations’ and the ‘state of confidence’. Therefore, the role which contrasting economic
theories, utopian models and fictitious notions play in the formation of expectations remains
in the dark. 17 And more than that: Keynes never asks the question of what it means if
misleading theories rule the world. He never analyzes the consequences of the fictitious ideas
of the classical school for the nineteenth century. Instead, he concentrates on his own ability
to change “the way the world thinks about economic problems”. 18 And, indeed, he contributes
and succeeds in influencing economic realities after World War II.
Therefore the central question remains open. Only Polanyi raises the issue: What are the
consequences, if fictitious ideas ‘rule the world’? What does it mean if the material world is
not the driving force, but rather ideas, beliefs and theories, however wrong and erroneous
16
Keynes 1936, 383.
17
This weakness was exploited later by the ‘rational choice theory’ which simply substituted ‘rational’
expectations for the Keynesian ‘adaptive’ expectations.
18
Keynes was optimistic about the advancement of his own ideas: “I believe myself to be writing a book
on economic theory which will largely revolutionize not, I suppose, at once—but in the course of the next
ten years the way the world thinks about economic problems. … I don't merely hope what I say, in my own
mind I'm quite sure” (Keynes, 1935/73, 492–493).
9
these may be? How can we explain the emergence “of a society that was not subject to the
laws of the state, but, on the contrary, subjected the state to its own laws”? 19 And what is the
outcome, if the ‘liberal utopia’ becomes the dominant vision of the world?
The basic idea of Polanyi’s approach is that, if man believes in the objective existence of
economic laws, these laws will become real. If man takes the autonomy of the economy and
the institutional separation of the economic sphere from the rest of society for granted, the
market system will function largely as a self-regulating system in which the economic
motives of man, self-interest, and the essentially economic motivation of human behavior
prevail. In a certain sense, Polanyi’s interpretation anticipates a central dimension of Robert
Merton’s category ‘self-fulfilling prophecy’. The liberal credo, like the self-fulfilling
prophecy, has the capacity to enable a utopian vision of social reality to evoke a behavior of
the economic actors “which makes the original false conception come ‘true’. The specious
validity of the self-fulfilling prophecy perpetuates a reign of error”. 20 But this is only part of
the truth. Utopian ideas can never be realized in full. And they will produce results which are
in conflict with the intentions of the actors.
The faith in the liberal utopia has the consequence that self-regulation may become real
from an economic, but not from a social point of view. In other words: in a competitive
market “the supply-demand-price system will always balance”. 21 But the economic price
which this mechanism brings about does not automatically satisfy the needs of society.
Economic and social rationality fall apart. By following its own reified economic logic, the
supply-demand-price system endangers society. The self-regulating market system threatens
nature, the living conditions of the relevant parts of population and the social acceptability of
the economic process itself.
Supporters of the correspondence theory of truth may expect that fictitious and misleading
ideas or theories are irrelevant because they do not work and/or, sooner or later, they will be
weeded out. But Polanyi shows that this idea is much too simple. In the field of tacit
assumptions, utopian ideas about social ideals, and world views, there is no process of
falsification, no weeding out of wrong ideas, and no automatic convergence in direction of
19
Polanyi 1944/2001, 112.
20
Merton 1948/63, 423.
21
Polanyi 1944/2001, 223.
10
truth. 22 It is erroneous to think that economic disasters, breakdowns or crises can help to
overcome the liberal utopia. Reality as such can neither prove nor refute a belief. Decisive is
the interpretation and explanation of the occurrences, by the scientific models and the
theories.
Karl Popper, the philosopher of science, may place his hope in a process of approximation
toward the truth. Karl Polanyi, the social scientist, keeps his feet on the ground. The ‘double
movement’ takes the place of ‘falsification’. The ‘liberal utopia’, 23 even if fictitious and
misleading, rules the world in the nineteenth century. All the utopian ambitions cannot
prevent the liberal credo from becoming real in its consequences. 24 They cannot prevent the
actors from attempting to stick up for their utopia. But they also cannot avoid the results
diverging from the intentions. The people affected most will try to protect themselves and
society against the negative consequences of the utopian endeavor. On the one hand, the
liberal political forces are effective in their attempt to push forward the impossible, while on
the other hand the counter movement tries to fight against the negative outcome of the
initiative of the first. There is no symmetry. The liberal project disposes of a more or less
coherent idea. The countermovement is often spontaneous, unstructured and heterogeneous.
But both are necessary components of the nineteenth century civilization.
At the core of the double movement are the commodities which Polanyi calls the ‘fictitious
commodities’: labor, land and money. Let’s have a brief look at the first one. “Labor is only
another name for a human activity which goes with life itself, which in its turn is not
produced for sale but for entirely different reasons”, Polanyi states. 25 The commodity
character of labor is a fiction. No laborer has ever been produced for sale. But nevertheless
the fiction is real because it rules the nineteenth century’s civilization. The commodity fiction
can become true from the point of view of the self-regulating market system, but it is not true
from the perspective of society. Recall that the term ‘fictitious commodities’ is neither an
22
As we know from the writings of Kuhn, Lakatos, Feyerabend and others, even science does not follow
the unidirectional line which Popper originally had hypothesized.
23
Recall that it was Polanyi’s original plan to call the whole book ‘The liberal utopia’ instead of ‘The Great
Transformation’. He gave up this idea only after the intervention of his publisher who convinced him that –
with a view to the US-market – the title could be misunderstood.
24
”If men define situations as real, they are real in their consequences” (Thomas/Thomas 1928, 572).
25
Polanyi 1944/2001, 75.
11
empirical statement nor does it express a moral judgment. 26 When Polanyi says that labor,
nature, money are ‘not produced for sale’ he expresses the idea that the ‘fictitious
commodities’ do not have the kind of supply schedule which we assume, if we consider
supply and demand of ‘regular commodities’, as the driving forces of the price mechanism.
Therefore, in these cases the market mechanism cannot function properly. It produces
unsustainable social consequences which backfire on the market process. Or more precisely,
the market may produce equilibrium, but by doing so it does not necessarily generate prices
which accommodate the working class with minimum wages high enough to survive.
Therefore, in direct opposition to the standard assumptions, in the case of falling wages the
workers may be forced to offer an increasing quantity of labor, longer working hours and/or
to accept a second or a third job. Again, even if the supply-demand-price system balances, the
price which it brings about does not necessarily satisfy the needs of society. Polanyi can
conclude that the “self-adjusting market … could not exist for any length of time without
annihilating the human and natural substance of society; it would have physically destroyed
man and transformed his surroundings into a wilderness”. 27
From what we have said up to now, it should be clear that the countermovement against
the expansion of the market process has to be considered an integral part of the nineteenth
century’s civilization as much as the liberal credo itself. The civilization could not have
existed without the protection of the countermovements. The liberal credo and the protection
against the negative consequences are the two driving forces on which the civilization of the
nineteenth century rests. “The double movement … can be personified as the action of two
organizing principles in society, each of them setting itself specific institutional aims, having
the support of definite social forces and using its own distinctive methods. The one was the
principle of economic liberalism, aiming at the establishment of a self-regulating market,
relying on the support of the trading classes, and using largely laissez-faire and free trade as
its methods; the other was the principle of social protection aiming at the conservation of man
and nature as well as productive organization, relying on the varying support of those most
immediately affected by the deleterious action of the market—primarily, but not exclusively,
26
And it does not refer to Marx's assertion of the fetish character. The latter, Polanyi states “has nothing in
common with the fictitious commodities” (Polanyi 1944/2001, 76).
27
Polanyi 1944/2001, 3.
12
the working and the landed classes—and using protective legislation, restrictive associations,
and other instruments of intervention as its methods”. 28
Even if the counter movement was heterogeneous and spontaneous in character, it was
more than a passive response to the threat created by the application of the liberal principles.
It actively spurred on the political fight. And it contributed to what we may call the
‘politicization of the policy environment’. It did not only press ahead with democratization. In
the interwar period, by transforming and occupying the political realm which became a
necessary condition for its struggle, it also brought to an end the double movement and,
therefore, the civilization of the nineteenth century.
It is extremely important to understand that in the 1930s, as Polanyi already expresses in
the first sentence of ‘The Great Transformation’ quoted above, the civilization of the
nineteenth century had reached its end. The attempt to restore the liberal civilization had
failed. With the Great Depression a new epoch started. In the ‘revolutionary thirties’ the
conflict which in the nineteenth century had fuelled the double movement spiralled into an
open clash between the economy and the political sphere, the global market system and
democracy, which resulted in a deadlock threatening both democracy and the market system.
In a nutshell, the politicization of the policy environment which was brought about by the
counter movement in order to defend society undermined not only the market mechanism, but
it also destroyed the interplay between the principle of economic liberalism and the principle
of social protection which had characterized nineteenth century civilization.
In an article written for the Austrian weekly ‘Der Volkswirt’[The Economist], Polanyi
sums up the situation at the beginning of the 1930s: “Between the economy and politics an
abyss has opened. That is in meagre words the diagnosis of the age. The economy and the
political sphere … have made themselves independent and wage war against each other”. 29
Polanyi’s assertion that the civilization of the nineteenth century was destroyed by the
politicization of the policy environment and the deadlock which resulted from the conflict
between the political and the economic realm is crucial for an understanding of the twentieth
century. The Great Depression was not primarily an economic crisis, but the end of the liberal
credo and of the countermovement which it had triggered. And it prepared the path for
28
Polanyi 1944/2001, 138-39.
29
Polanyi 1932/2002, 149; translation by the author.
13
completely new alternatives. In the final chapter of ‘The Great Transformation’, Polanyi
discusses only two extreme forms which emerged from the ruins of the liberal civilization,
fascism and socialism. But in earlier writings he went beyond these alternatives and pointed
in direction of possible intermediate solutions: “We ought, in fact, not to exclude wholly the
possibility of a Capitalism ‘reformed’, so as to make it comply with some measure of
planning in the process of production, and with some measure of security of tenure for those
engaged in this process. In the current terminological jargon this would sound like so much
unscientific fiction. For planning and security of employment are (and, in a manner, rightly)
regarded as ‘Socialist’ features in industry; it would seem almost a contradiction in terms to
conceive of them as possible features of Capitalism under any circumstances whatever. But to
think this is another dangerous scholastic fallacy”. 30 And, as a matter of fact, it is some kind
of Capitalism ‘reformed’ which became relevant after World War II.
4
The Reconstruction of the Belief in Economic Determinism
If the nineteenth century civilization was destroyed during the interwar period, how is it
possible that after World War II – slowly in the first decades, with increasing speed in later
years – a process of liberalization, privatization, and deregulation set in? Isn’t it true that the
Soviet Union and the Berlin Wall were blown away by public uprising? And isn’t it a fact that
the System of Bretton Woods has broken down, that Keynesianism has failed, that the vast
majority of Third World Countries have accepted the market view of social and economic
development? Wasn’t Margaret Thatcher right when she underlined that ‘there is no
alternative’ to the neoliberal model of society? In other words: Doesn’t the process of
economic globalization during the last decades demonstrate that there exist laws of social and
economic development which are stronger than political intervention and purposeful human
planning? How would we otherwise be able to explain the fact that neoliberalism gained
ground again? Isn’t the whole history since the publication of ‘The Great Transformation’ and
the success of the neoliberal credo the proof that economic determinism is real and Polanyi’s
hope “to transcend the self-regulating market by consciously subordinating it to a democratic
society” 31 is nothing else than a charming, but in the end utopian, dream? Therefore, how can
30
Polanyi 1934, 129.
31
Polanyi 1944/2001, 242.
14
I – as suggested at the beginning of the article – defend the idea that Polanyi’s analysis offers
the key to a critical understanding of neoliberalism?
Polanyi’s central thesis is that the belief in economic determinism, not economic determinism
itself, is the key to understanding nineteenth century civilization. My question, therefore, is:
What if the same is true for the neoliberal epoch? What if again the belief in economic and
social laws is the driving force behind the social transformation which the world has
undergone since World War II? What if today the neoliberal credo ‘rules the world’ in a
similar manner to which the liberal credo ‘ruled the world’ in the nineteenth century?
In order to demonstrate that the latter is true we can try to show how the protagonists of the
neoliberal credo, starting from the Walter Lippmann Colloquium and the Mont Pelerin
Society, created a net of very efficient think tanks; how they took over the Chicago School of
Economics; and how they used the economic sciences for their goals. Indeed, a lot of very
interesting studies which reveal the systematic efforts of neoliberal initiatives to extend their
influence within the social sciences, public opinion and the political realm have been
published in the last decades. 32 I do not intend here to summarize the findings of these
studies. They are well known. I simply want to add one aspect, i.e. I want to demonstrate that
there is another factor, which, is also essential for their turning into the leading ‘vision of the
world’: The protagonists of the neoliberal credo could achieve their goal only because they
“have understood, as progressives have not, that … if you can occupy peoples' heads, their
hearts and their hands will follow”. 33 They have learned the lesson. They have learned that
not economic determinism, but the belief in determinism is the key. They understand that they
have to create consent and that they must occupy public opinion and the parliaments, if they
want to succeed. And they have made it their task to reconstruct the belief in determinism.
As I will show in the concluding section of the paper, Polanyi’s analysis is fundamental for a
critical understanding of the neoliberal credo because the latter aspires to a similar break to
the one we analyzed in Polanyi’s work, but with the opposite objective. The protagonists of
the neoliberal credo aim consciously at the restoration of the society which had been
destroyed in World War I and the Great Depression.
32
Cf. Vgl. Cockett 1994, Dixon 2000, Mirowski 2002, Walpen 2004, Nordmann 2005, Horn 2009,
Horn/Mirowski 2009, Mirowsik/Plewe 2009, Horn/Mirowski/Stapleford 2011.
33
George 1999/2002, 28-29.
15
The protagonists of neoliberalism understand quite well that with World War I, the
Bolshevist Revolution, and the breakdown of the International Gold Standard, the civilization
of the nineteenth century had come to an end. Lippmann devotes a whole chapter of his book
‘The Good Society’ to the analysis of “the debacle of liberalism in the nineteenth century”. 34
Hayek detects “a complete change in the direction of the evolution of our ideas and social
order” and “a break not only with the resent past but with the whole evolution of Western
civilization” with the result that “nineteenth- and eighteenth-century liberalism … is
progressively relinquished”. 35 And Mises complains that “even in England, the home of
Liberalism, a nation which has grown rich and great through its liberal policy, people no
longer know what Liberalism really means. The English ‘Liberals’ of to-day are more or less
moderate socialists”. 36
Nevertheless, the pivot on which the whole neoliberal project turns is the recognition of the
relevance of the belief in economic determinism. Ludwig Mises puts the quintessence of
neoliberal credo in a nutshell when he states only three years after the publication of Polanyi’s
article ‘The crisis of our vision of the world’ in his book ‘Socialism’: “Neither God nor a
mystical 'Natural Force' created society, it was created by mankind. Whether society shall
continue to evolve or whether it shall decay lies … in the hand of man”. 37 “Human society is
an issue of the mind. Social co-operation must first be conceived, then willed, then realized in
action. It is ideas that make history, not the ‘material productive forces’”. 38 In the same year,
Walter Lippmann on the other side of the Atlantic highlights the importance of the revolution
which is “infinitely more significant than any shifting of economic power”. And he adds that
“it is no daring prophecy to say that the knowledge of how to create consent will alter every
political calculation and modify every political premise”. 39 The crucial difference between the
classical liberal belief and the neoliberal credo is, from the point of view under consideration,
that the latter does not regard the self-regulating market system as a fact which is beyond
34
Lippmann 1937/44, 183-203.
35
Hayek 1944/89, 12-13.
36
Mises, 1922/51, 27.
37
Mises 1922/51, 515.
38
Mises 1922/51, 509; italics added. In his perhaps most important book ‘Human Action’ he underlines
again: “Society is a product of human action. Human action is directed by ideologies. Thus society and any
concrete order of social affairs are an outcome of ideologies” (Mises 1940/49, 188).
39
Lippmann 1922/2004, 135-36.
16
human control but as a result of human beliefs and intentions. 40 In other words, the
protagonists of the neoliberal credo share Polanyi’s insight that it is not economic laws
themselves, but the belief in the laws of classical political economy that is decisive. And they
do not treat this insight as the point of view of theoretical reason only, but also as a guideline
for their theoretical and political praxis. The neoliberal self-conception pretends to regard the
construction and extension of the market system as their task. Markets are not seen as the
result of natural progress, but as a human construct, a political project, which can gain ground
again only if it is supported by a strong neoliberal political movement.
Laisser-faire had been the logical consequence of the belief in economic determinism.
Therefore, from a political point of view, it is consequent to regard laisser-faire as the main
reason for the failure of classical economic liberalism. Walter Lippmann characterizes laisserfaire as “the cardinal fallacy of nineteenth-century liberalism”. 41 Hayek and many others
agree: “Nothing has done so much harm to the liberal cause as … the principle of laissez
faire”. 42 It is important to understand that in the interwar period, laisser-faire is not only
criticized by Polanyi and pronounced dead by Keynes – the classical principle is also rejected
by the protagonists of the neoliberal credo. And they propose an alternative. For neoliberalism
the options are not any longer: ‘Laisser-faire versus planning’; but: ‘Planning for what goal’?
Again, Hayek is quite explicit when he underlines the importance of, “the very necessary
planning which is required to make competition as effective and beneficial as possible“. 43 The
neoliberal maxim is not laisser-faire, but “planning for competition”. Friedman follows the
Austrian when he underlines that “neoliberalism … would substitute for the nineteenth
century goal of laissez-faire … the goal of the competitive order”. 44 In other words, the
neoliberal authors do not deny the importance of purposeful planning and, therefore, of the
hegemony within the political realm. Their goal is not the deepening of the institutional
40
Concerning the civilization of the nineteenth century Mises maintains: “modern civilization … was able
to spring into existence because the peoples were dominated by ideas which were the application of the
teachings of economics to the problems of economic policy. It will and must perish if the nations continue
to pursue the course which they entered upon under the spell of doctrines rejecting economic thinking”
(Mises 1940/49, 10).
41
Lippmann 1937/44, 184.
42
Hayek 1944/89, 18.
43
Hayek 1944/89, 42.
44
Friedman 1951, 91,93; translation by the author.
17
separation of the economic sphere from the rest of society, but the conquest of public opinion
and of the power within the political realm.
Lippmann, Mises, Hayek, Friedman and their followers do not consider themselves
primarily as observers, but as participants (or perhaps even better: protagonists) of the social
transformation. They see themselves as the elite which leads the masses. Mises expressed in
his book ‘Socialism’ the idea that “the masses do not think. But just for this reason they
follow those who do think. The intellectual guidance of humanity belongs to the very few
who think for themselves”. 45 At the founding meeting of the Mont Pelerin Society Hayek
takes up Mises’ idea when he explains: “Public opinion on these matters is the work of men
like ourselves, the economist and political philosophers of the past few generations, who have
created the political climate in which the politicians of our time must move … It is from this
long-run point of view that we must look at our task”. 46 In the mind of the protagonists of the
neoliberal credo the self-regulating market system is not a fact. Instead, its creation and the
extension of the market system are considered as a goal to be achieved, as their mission.
It becomes evident here that the neoliberal project, even if it shares Polanyi’s idea of a
polarity between human relationships which are direct and personal on the one hand, and
objective, self-regulating social mechanisms, such as markets, on the other hand, pursues the
opposite goal. From Polanyi’s point of view the end of economic determinism is a liberating
insight. It shows that the creation of a more human society does not depend on social laws,
i.e. on obstacles which are beyond man’s control. The new insight allows for the rolling back
of economic mechanisms, inhuman institutions, and social ‘objectivations’ in general. And it
opens up the possibility to strengthen human freedom, responsibility, oversight, democracy,
and community. From the perspective of the neoliberal credo it is the opposite. The
protagonists of the neoliberal credo try to accomplish what the classical liberals had failed.
Their goal is to return to a society which was ruled by economic laws. But they know about
the challenges involved in the project. They know that the return to the civilization of the
nineteenth century is as difficult as the return of Eve into the paradise after having eaten from
the tree of knowledge. On the one hand, the insight, that it is not economic laws, but the belief
in economic laws that is the cornerstone of the neoliberal credo. On the other hand, its main
45
Mises 1922/51, 508.
46
Hayek 1949/80, 108; italics added.
18
goal is to construct a world view which supposes some kind of economic determinism. In
other words: The protagonists of neoliberalism fear what they have learned. They are
frightened by the insight that the social transformation for which they are striving is not
sustained by economic or social laws, but only by the belief in the validity of such laws. They
are worried because the end of economic determinism reveals the fragility of the liberal social
and economic world. They know that after World War II economic liberalism has only a
chance to win the ‘battle of ideas’ 47 if they are successful in their attempt to resurrect a
fictitious belief.
The neoliberal project may look like a ‘mission impossible’, an absurd and utopian
endeavour. And this is true! The neoliberal credo is no less utopian then the classical liberal
credo. But the utopian character of a world view does not exclude – neither in the nineteenth
century nor today – that it ‘rules the world’. 48
At the same time, the recognition of the crucial role of the belief in economic determinism
makes it impossible to return directly to the old theories. The neoliberal theory cannot uphold
the idea of a ‘natural progress’ in the direction of the market civilization. It has to accept that
there are no economic laws of distribution, no laws of accumulation and no laws of economic
growth. The economic laws of development are and remain a story of the past. The objective
theory of value has to be given up. Economic determinism has to be reconstructed on a new
foundation which recognizes that human motives, ideas and world views are the starting
point. The neoliberal kind of economics determinism, instead of referring to physics or
biology, concentrates on the motivation (or rationality) of human beings which the models of
a well-functioning market process presuppose. If Mises is talking about praxeology as “a
general theory of human action”, 49 if Hayek distinguishes between “the motivating or
constitutive opinions on the one hand and the speculative or explanatory views” 50 on the
other hand, or if Friedman insists on the Chicago price theory as one of the pillars of his
47
Mises 1922/51, title of part V, chapter III, §3.
48
Hayek goes even one step further when he considers the utopian character of the neoliberal belief a
precondition of its success: “We must be able to offer a new liberal program which appeals to the
imagination. We must make the building of a free society once more an intellectual adventure, a deed of
courage. What we lack is a liberal Utopia … The main lesson which the true liberal must learn from the
success of the socialists is that it was their courage to be Utopian which gained them the support of the
intellectuals and therefore an influence on public opinion” (Hayek 1949/60, 384).
49
Mises 1940/96, 7.
50
Hayek 1955/69, 37.
19
‘positive science’, 51 they all attempt to reconstruct a fictitious vision of the world, which at
the end seems to be no less deterministic than the old one.
5
Polanyi in the Twenty-First Century
What does all this mean? What can we learn from Polanyi’s analysis? It is true that Polanyi
had assumed, “that economic determinism was pre-eminently a nineteenth century
phenomenon”. 52 Even if he did not exclude it, 53 he surely did not expect the reconstruction of
the belief in economic determinism by a new version of liberalism. But we should keep in
mind that ‘The Great Transformation’ was written in a period when the neoliberal credo was
still in its infancy, i.e. some years after the Walter Lippmann colloquium, but clearly before
the start of the Mont Pelerin Society, of the ‘Free Market Study Project‘ (1946-1952) which
was to become the point of departure of the ‘new’ Chicago School of Economics, etc. And,
indeed, the relevance of Polanyi’s work today does not depend on any kind of prediction.
The decisive fact is rather that at the beginning of the twenty-first century we are back in a
world which resembles the civilization of the nineteenth century in one crucial respect: “The
absurd notion of a self-regulating market system” 54 has become again the driving force behind
the transformation of society. This has at least four consequences: 1) We have to learn again
that the institutional transformation – from the deconstruction of the Bretton Woods System
to globalization, from the Washington Consensus to financial deregulation, from free trade
areas to the European Monetary Union – is not the result of any social or economic law or any
spontaneous tendency of the market system to expand, but the product of purposeful
neoliberal intervention. Even if the protagonists of the neoliberal credo try to obscure their
responsibility and hide behind the veil of presumed economic laws, the modern social
arrangement is mainly their creation. 2) We have to recognize that the effects of the neoliberal
credo are no less destructive to society than the results of the liberal utopia in the nineteenth
century. Therefore, the countermovement has lost nothing of its importance today. The
neoliberal societies could not survive without a strong and powerful countermovement, which
51
Cf. Friedman 1953a/96, 41.
52
Polanyi 1947, 96.
53
See the quote at the end of part 3.
54
Polanyi 1944/2001, 151.
20
protects society from the consequences of the utopian neoliberal project. 3) We must realize
that utopian beliefs, fictitious theories and absurd world views have to be taken seriously. We
have to learn what it means that social theories and visions of the world are part of social
reality. If Polanyi is right and it is not economic laws, but the belief in economic laws that is
the main challenge, then the neoliberal credo is not simply a theoretical misconstruction, but it
is at the very heart of the injustices, the destructive forces and the inhuman occurrences which
characterize the world today. 4) Last but not least, we should not forget that the break with
economic determinism is a liberating insight. It shows how important it is to develop
alternatives to the neoliberal world view. If theoretical ideas have to be recognized as part of
social reality, it is here where the intellectuals can exert their influence. Social theories would
never have been able to defeat what Marx called ‘the economic law of motion of modern
society’. But they can overcome the belief in economic laws. They can demonstrate that there
are no such laws, that the belief in economic determinism itself is nothing other than a
prejudice.
21
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