Polanyi on the market

Karl Polanyi's The Great Transformation is a classic statement of a polar position in the issue of the universality of instrumental rationality and market institutions in explaining concrete historical circumstances in the recent and distant past. Polanyi maintains that the concept of economic rationality is a very specific historical construct that applies chiefly to the forms of market society that emerged in Western Europe in the early modern period. Market behavior came to replace other forms of motivation within European society in this period, and individuals came to act more and more on the basis of a calculation of self-interest. However, Polanyi holds that this form of behavior, like the economic institutions of the market within which it emerged, is highly specific to a particular time and place. To make use of this model of action as though it were a universal feature and determinant of human behavior is as unjustified as it would be to extend medieval chivalry to all times and places.

No society could, naturally, live for any length of time unless it possessed an economy of some sort; but previously to our time no economy has ever existed that, even in principle, was controlled by markets. . . . Gain and profit made on exchange never before played an important part in human economy. (Polanyi 1957:43)

While history and ethnography know of various kinds of economies, most of them comprising the institutions of markets, they know of no economy prior to our own, even approximately controlled and regulated by markets. . . . The role played by markets in the internal economy of the various countries . . . was insignificant up to recent times. (Polanyi 1957:44)

Against the idea that it is "natural" for men and women to be motivated primarily by self-interest, Polanyi writes:

For, if one conclusion stands out more clearly than another from the recent study of early societies it is the changelessness of man as a social being. His natural endowments reappear with a remarkable constancy in societies of all times and places; and the necessary preconditions of the survival of human society appear to be immutably the same. (Polanyi 1957:46)

The outstanding discovery of recent historical and anthropological research is that man's economy, as a rule, is submerged in his social relationships. He does not act so as to safeguard his individual interest in the possession of material goods; he acts so as to safeguard his social standing, his social claims, his social assets. He values material goods only in so far as they serve this end. Neither the process of production nor that of distribution is linked to specific economic interests attached to the possession of goods; but every single step in that process is geared to a number of social interests which eventually ensure that the required step be taken. . . . The economic system will be run on non-economic motives. (Polanyi 1957:46)

Thus Polanyi maintains that it is socially motivated behavior -- ªbehavior motivated toward the interests of one's family, clan, or village” -- rather than self-interested behavior that is "natural" for human beings; rational self-interest is rather a feature of a highly specific society: market society. Instead, Polanyi's account urges that the analysis pay primary attention to patterns of reciprocity and redistribution, shared values, traditions, and the determining role of community and politics. And he argues that virtually every society – traditional as well as modern – depends upon these sorts of social motivations.

In place of economic rationality and the market mechanism providing the basis for organization of the premarket economy, Polanyi argues that communitarian patterns of organization are to be found in a range of traditional societies:

The premium set on generosity is so great when measured in terms of social prestige as to make any other behavior than that of utter self-forgetfulness simply not pay. . . . The performance of all acts of exchange as free gifts that are expected to be reciprocated though not necessarily by the same individuals--a procedure minutely articulated and perfectly safeguarded by elaborate methods of publicity, by magic rites, and by the establishment of 'dualities' in which groups are linked in mutual obligations--should in itself explain the absence of the notion of gain or even of wealth other than that consisting of objects traditionally enhancing social prestige. . . . But how, then, is order in production and distribution ensured? . . . The answer is provided in the main by two principles of behavior not primarily associated with economics: reciprocity and redistribution. (Polanyi 1957:46-47)

Finally, Polanyi identifies the same element of materialist rationality in common among neoclassical political economists and Marx. Polanyi argues that Marxism analyzes the historical process in terms of individual self-interest, conceived largely in terms of material well-being.

There is the equally mistaken doctrine of the essentially economic nature of class interests. Though human society is naturally conditioned by economic factors, the motives of human individuals are only exceptionally determined by the needs of material want-satisfaction. That nineteenth century society was organized on the assumption that such a motivation could be made universal was a peculiarity of the age. It was therefore appropriate to allow a comparatively wide scope to the play of economic motives when analyzing that society. (Polanyi 1957:153)

All this should warn us against relying too much on the economic interests of given classes in the explanation of history. Such an approach would tacitly imply the givenness of those classes in a sense in which this is possible only in an indestructible society. (Polanyi 1957:155)

What kind of theory is this? And how should it be evaluated?

First, it is a hypothesis in historical sociology about institutions. Polanyi is asserting that history and ethnography provide a wealth of variety of fundamental economic and social institutions. Market institutions are historically specific -- there are periods of time in human history in which market institutions were barely present, and other periods in which they were essentially ubiquitous. And, though Polanyi doesn't do much with this, there is also the point that market institutions themselves show substantial variation across time and place. That said -- trade, artisanship, commodities, and production for the market appear to be activities that have very ancient roots in human societies. These kinds of economic exchanges are well documented in ancient China, Europe, and the Americas, and we can understand very well how they would emerge again and again out of ordinary human activity and interaction. So markets are surely not the nearly unique historical creation that Polanyi maintains them to be. Moreover, we can distinguish among "market" institutions (as Marx and Weber both do) according to whether they are organized around use or around accumulation; consumption or profit. (A neo-Polanyian might put forward a more limited claim: a market system aimed at accumulation is a historically recent institution.)

Second is a hypothesis about "human nature". Polanyi takes issue with a vulgar economism, according to which the most fundamental human motivation is rational self-interest. On the contrary, Polanyi maintains, this social psychology of "possessive individualism" (as C. B. Macpherson called it in The Political Theory of Possessive Individualism: Hobbes to Locke) is itself a very specific historical product -- not a permanent feature of human nature. In fact, Polanyi goes a step further and argues that the "social motivations" are more fundamental than rational self-interest. But here again, it seems likely that Polanyi puts his case much more absolutely than is justified. Being prudent and goal-directed -- paying attention to "costs" and "benefits" of various human activities -- is not simply a historical accident of the early modern period; it is a more or less permanent feature of the human species.

How should Polanyi's theory be assessed? There is an obvious risk of romanticizing human society that is implicit in Polanyi's reading of pre-modern societies -- expressing a moral preference for social cooperation and community, harmony and sharing, over competition, conflict, and self-striving. But romanticizing the past is not the same as understanding it factually and objectively. And it is my impression that anthropologists and historians would now be more inclined to find a mix of social and self-regarding motives in the contexts they study -- from contemporary Thai villages to the Greek polis to labor unions or environmental action groups. So Polanyi's black-and-white distinction between the past -- communitarian and social -- and the present -- egoistic and market-driven -- is too stark.

But at the same time, Polanyi's guiding intuition seems correct: human social behavior is influenced by more than simple self-interest, and human institutions are more varied than the vocabulary of the market would suggest. Human deliberativeness and purposiveness goes beyond maximizing rationality; it includes a broad range of "social" motivations and emotions. And a more adequate social psychology requires that we arrive at a better understanding of the motives that underlie cooperation and reciprocity. This is Amartya Sen's central conclusion in “Rational Fools" (link), and it is surely correct: "The purely rational economic man is indeed close to being a social moron”.

(The connection between Polanyi's theories and the terms of the moral economy debate are evident (discussed in prior postings).)